Rate of inflation falls slightly in October

Posted on November 15th, 2011 | Categories - News

Both measures of inflation fell in October giving hope that the rise in inflation has peaked and may now start to fall to more normal levels.

Figures released by the Office for National Statistics (ONS) show that the Consumer Prices Index (CPI) fell to 5% in October, down from 5.2% in September.

The Retail Prices Index (RPI), which includes mortgage interest payments, also fell by 0.2%, to 5.4%.

Lower food costs

The fall in the rate of inflation is in part due to lower food costs, which are a result of fierce competition between the major supermarkets.

Last month also saw a fall in air fares of 6% and a small fall in petrol prices.

Upward pressure was supplied by increases in the cost of clothing, gas and electricity.

Despite today’s fall experts are warning that price rises from the UK’s major energy suppliers are likely to cause the rate of inflation to rise in November and reverse October’s fall.

Target

Despite the small fall the rate of inflation still remains well above the 2% target, however the Bank have regularly predicted that the inflation rate will start to slow towards the end of 2011 and moving into 2012.

In a letter to George Osborne, Mervyn King (right), Governor of the Bank of England, said: “The current high level of inflation reflects the increase in the standard rate of VAT earlier this year, and previous steep increases in import and energy prices”.

Mr King went on to say that many of the factors pushing inflation up were “temporary” and that if they were removed inflation would fall back below the 2% target.

It seems that the government recognises that inflation is still relatively high and causing pain for many groups, including savers, pensioners, those on fixed incomes and workers who are seeing pay rises significantly lower than current levels of inflation.

Reacting to the figures a Treasury spokesperson said: “These are difficult times for households as prices continue to be affected by conditions in the global oil and gas markets.”

Savers hit hard

Savers have been amongst the hardest hit by high inflation rates, especially at a time when interest rates are at all time lows.

Today’s fall in the rate at which inflation is rising is unlikely to bring any immediate relief for savers. The Bank of England’s Monetary Policy Committee, who set interest rates, seem unwilling to put further pressure on the fragile recovery by pushing up interest rates, which is the traditional check on rising inflation. It is now impossible for savers to find an account which pays an interest rate net of tax sufficient to keep pace with inflation.