Last month's dip in pump prices, combined with lower increases in air fares brought inflation inflation back to the Bank of England's two per cent target for the first time since June.
Inflation as measured by the consumer prices index, chosen by Chancellor Gordon Brown as the benchmark for the Bank's target was running at 2.5 per cent as recently as September, but had fallen back to 2.1 per cent by
November, as oil products responded to the downward drift in the price of crude since August.
National Statistics said ultra-low sulphur petrol fell by an average of 3p per litre to 87.1p last month.
Ironically the news of falling inflation coincided yesterday with a new surge in the price of crude reflecting attacks on Shell's off-shore rigs in Nigeria and the looming nuclear crisis in Iran, the world's fourth largest oil producer.
Looking ahead, the International Energy Agency warned that a rebound in the growth of Chinese demand and stronger US consumption will drive up world demand for oil this year, straining OPEC's spare capacity still further.
The price of Brent crude rose 69 cent to $63.87 yesterday, after a 58-cent increase on Monday, while the US price touched $65.53.
Birmingham Chamber of Commerce and Industry, called for an interest rate cut, now that inflation is back in line with the Bank's target, while still stressing the need for caution.
"In the light of these positive figures, we call on the Bank of England for a cut in interest rates sooner rather than later," said James Cooper, the Chamber's policy adviser. The Bank's Monetary Policy Committee does, however, need to continue to be wary of inflationary pressures in the economy.
"While petrol prices fell in December, evidence does suggest that businesses are beginning to pass the effects of high energy prices on to their customers. The MPC will have many factors to consider when it next meets."
Increases in many employers' pensions will be held back by the impact on the traditional retail prices index of stable house prices, which are left out of the CPI.
The RPI finished 2005 only 2.2 per cent higher over the year, the smallest 12-month increase since October 2002. Pensions raised in line with the RPI will therefore go up by appreciably less than seemed likely in the early autumn when the RPI was showing a 2.5 year cent increase.
Price-cutting by shopkeepers ahead of Christmas also helped to restrain inflation last month, NS noted.
Retailers of furniture, furnishings and carpets all raised their prices in December by less than in late 2004.
Against that, upward pressure on inflation came from prices of women's clothing, which fell by less than a year before as fewer shops started their mid-winter sales early and left more expensive stock on their shelves.
Inflation would now be a clear half-point below the Bank's target, if Mr Brown had not changed the benchmark two years ago, while lowering the target from 2.5 per cent.
His old measure - the RPI leaving out mortgage interest - rose by precisely two per cent over 2005, falling sharply from 2.3 per cent for the 12 months to November.