Relief for household budgets as inflation hits 5-year low
Inflation fell to a five-year low of 1.2% in September as the supermarket price war and lower petrol prices kept a lid on the rise in the cost of living.
The Consumer Price Index (CPI) measure of inflation dropped more sharply than expected from 1.5% the month before, the Office for National Statistics (ONS) said.
Food and non-alcoholic beverages fell by 1.4% year-on-year, the steepest drop since June 2002 and the fifth month in a row that they have not risen on an annual basis.
It is the longest sustained period of flat or falling food prices since the end of 2004.
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Falling pound
The pound fell sharply today as the sharper-than-expected inflation drop meant it was less likely that the Bank of England will need to take action soon to raise interest rates from their five-year low of 0.5%.
The CPI figure means that state pensions will rise by 2.5% or £2.85 a week next spring as the Government's "triple lock" ensures an increase of whichever is the greater out of average earnings, September's inflation rate or 2.5%.
The Bank of England targets inflation at 2% but it has now been below this level for nine months in a row. Governor Mark Carney must write to the Chancellor to explain if it is more than 1% higher or lower.
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No pressure to hike rates
Low inflation removes any immediate pressure on the Bank to raise interest rates amid the continuing uncertain recovery in the wider economy.
It also eases some of the strain on household budgets - although real-terms pay is still falling, with latest figures due out tomorrow expected to show it remains below 1%, lagging behind inflation.
However, policy-makers will be concerned if there is a danger of CPI becoming too low.
Ultra-low inflation in the eurozone has prompted emergency rate cuts and stimulus by the European Central Bank as it battles to stave off a damaging deflationary spiral.
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A mixed bag
Today's ONS figures showed that petrol fell by 0.8p per litre in September compared with the previous month, and diesel by 0.7p, amid tumbling oil prices.
Meanwhile, sea and air fares fell more steeply than at the same time last year, while laptops and tablets, computer games, games consoles, books and e-books also contributed to the inflation slowdown.
Restaurants, cafes and canteens saw lower price rises than in the same month a year ago.
The ONS said that were it not for the impact of falling food and motor fuel prices - the latter of which were down 6% - the rate of inflation would be around a third higher at 1.6%.
CPI has not been lower since September 2009, when it stood at 1.1%.
RPI also down
The Retail Price Index (RPI), a separate measure which includes housing costs, fell from 2.4% to 2.3%, its lowest level since November 2009.
Prime Minister David Cameron said: "It's good news that inflation remains low. Our long-term economic plan is delivering more financial security and stability for families.
"Today's inflation figures mean a big real-terms increase in the state pension next year - helping people who've worked hard all their lives."
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