Inflation edges up in October

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Heathrow Stock
Heathrow Stock

Inflation rose to 1.3% in October but food prices have failed to increase for six months in a row - the longest run in 14 years - official figures showed today.

The small increase in the Consumer Price Index (CPI) measure of inflation came after it reached a five-year low of 1.2% in September.

Figures from the Office for National Statistics (ONS) showed it would have been 0.3% higher but for falling food and petrol prices.

Last week the Bank of England said it expected CPI to drop below 1% over the next six months, which would require governor Mark Carney to have to write a letter to the Chancellor.

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Food and non-alcoholic beverage prices fell 1.4% in October compared with last year, equalling the rate in September which had not been steeper since 2002, as supermarket competition remained intense.

It means food inflation has been flat or negative for six months, the longest stretch since 2000.

CPI has now been at or below the Bank of England's 2% target for 11 months in a row.

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George Osborne Hails GDP Growth
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The low inflation environment coupled with gloom over the world economy has led economists to push back expectations for when the Bank will raise interest rates from 0.5% to as far as 2016.

Petrol prices fell by 2.5p per litre between September and October, but this compared with a larger fall in the same period last year, meaning fuel had an upward impact on headline inflation.

Air fares also contributed to rising inflation, as did the price of new computer games released in the run-up to Christmas, as well as more university students paying higher tuition fees.

Meanwhile, competition between furniture retailers saw discounts on three-piece suites and settees, which had a downward effect on CPI.

The Retail Price Index (RPI) measure of inflation, which includes housing costs, remained unchanged at 2.3%.

Inflation has been kept low by the supermarket price war as well as falling oil prices and the strength of the pound weighing on import costs.

A continued low CPI rate boosts prospects for an upturn in real terms pay after a six-year squeeze during which wages have been lagging behind the cost of living.

Make sure your savings beat inflation - compare rates

Latest figures last week showed pay rising at a still-below-inflation 1%, though stripping out bonuses the increase was 1.3%. The Bank of England is expecting total pay increases to average 3.25% in 2015.

Chief Secretary to the Treasury Danny Alexander said: "Consistently low inflation helps give businesses the confidence to invest as well as helping with family budgets.

"There are clearly risks ahead arising from uncertainties in the eurozone and global economy.

"But combined with record job creation and strong growth, today's figures show that our recovery plan is working and that we are continuing to make progress."

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