Cheaper energy lowers inflation

Sale signsLower electricity and gas bills helped drag the overall rate of inflation to a 15-month low last month, official figures have shown.

The consumer prices index (CPI) rate of inflation dipped to 3.4%, compared to 3.6% in January, the Office for National Statistics (ONS) said, as E.ON and Scottish Power cut their tariffs.
Cheaper air fares and discounts on digital cameras also pulled the CPI rate lower but a record January to February rise in alcohol prices, driven by spirits, held back further declines.

The drop comes as some economists warn that the overall rate of inflation may not pull back as quickly as previously thought amid resurgent oil prices, although the ONS said there was no evidence of this in February.

The easing rate of inflation will be welcomed by households that were squeezed by high prices and sluggish wage growth throughout 2011, and will add further weight to the Bank of England's decision to pump an extra £50 billion into its quantitative easing programme last month.

Bank governor Sir Mervyn King and his colleagues have forecast the rate of inflation to dip below the Government's 2% target at some point early next year.

The greatest downward pressure on the CPI rate came from domestic electricity and gas bills, which fell 1.3% and 0.9% respectively.

Scottish Power reduced gas tariffs by an average 5% for around 1.4 million domestic gas customers last month after E.ON announced a 6% fall in electricity bills, benefiting 3.7 million customers.

But there was also a drop in the cost of recreation and culture, driven by cheaper digital cameras, pet-related products and books, newspapers and stationery. Air fares fell by 1.6%, compared to a 2.1% rise a year ago, driven by cheaper European tickets, the ONS said.

Alcohol prices rose 2.6%, a record rise for a January-to-February period, but the ONS said this is a particularly volatile category and offered no specific reason for the rise. Alternative measures of inflation also declined, with the retail prices index (RPI) dipping to 3.7% in February, from 3.9% in January.
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