Inflation set to fall to 4-year low

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%VIRTUAL-SkimlinksPromo%Inflation is expected to have fallen to a new four-year low in February amid hopes of an end to the prolonged squeeze on real wages.

Economists expect the Consumer Prices Index (CPI) to have dropped to 1.7% from 1.9% in January - the fifth monthly slowdown in a row - when figures are published tomorrow by the Office for National Statistics.
CPI has not been lower since October 2009 when it stood at 1.5%.

Wages have been growing at below the rate of inflation for nearly four years. It means the amount of money in pay packets has effectively been falling because it is lagging behind the cost of living.

But last week George Osborne unveiled new official Budget forecasts showing that earnings are finally expected to return to real terms growth later this year.

Latest official figures showed that total pay increased by 1.4% in the three months to January on the year before, narrowing the gap with inflation. The private sector was doing better at 1.7%, while
ordinary public sector workers saw only a 0.9% rise.

The continued fall in the rate of inflation is expected as aggressive discounting by retailers last month saw shop prices slide by a record 1.4%, according to figures from the British Retail Consortium.

Price pressures at the petrol pumps have also eased while energy bills have seen a mixture of hikes and cuts, compared to an overall rise at the same time last year.

CPI fell to the Bank of England's 2% target for the first time in four years in December, having slowed from a rate of 2.9% last June.

Economists expect inflation to continue to undershoot the target in coming months, easing pressure on the timing of any eventual rise in interest rates from their historic low of 0.5%.

Howard Archer, of IHS Global Insight, said underlying price pressures should remain limited for some time to come though there is a chance oil could spike as a result of the crisis over the Ukraine.

Samuel Tombs, of Capital Economic, said: "Inflation figures should show that it fell further in February, raising the prospect that a return to rising real pay may only be a few months away."

The stronger pound should help ease goods price costs while last year's global commodity prices fall should feed through to easing food inflation, he added.

"We think that CPI inflation could fall to as low as 1% by the end of this year."

The shrinking value of the pound
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Inflation set to fall to 4-year low

1973: 14p

2014: £2.87

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2014: £1.30

1973: 6p

2014: 46p

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2014: £1.42 

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2014: £2.78

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2014: £2.02 

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2014: 91p 

1973: 58p

2014: £4.84 

1973: 11p

2014: 93p 

1973: 28p 

2014: £2.67 

1973: 15p

2014: £1.19 

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2014: £1.41 

1973: £17,000

2014: £305,000 


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