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UK inflation is starting to ease as rates fell from 5.2% to 5% for the Consumer Price Index (CPI) in October. The Retail Price Index (RPI) has also fallen, from 5.6% in September to 5.4% in October. In September, inflation reached its highest level since 1992. This could mark the beginning of a string of falling inflation rates, which will be great news for several British households. The downward pressure on inflation rates was triggered by a reduction in the cost of food and widespread supermarket discounting. British Retail Consortium Director General, Stephen Robertson, said; "The supermarket price war is working for shoppers. Our own figures show food was 0.5 per cent cheaper in October than in September. There's been no bigger month-on-month drop in prices for more than two years. "With consumers' budgets under severe pressure, competition between retailers has intensified. Supermarkets are cutting their already thin margins even further to hold down shop prices in the face of rising energy and property costs.” Financial pressure However, this is only a small step in the right direction and levels are still not close to that of August, when it was 4.5%. This is still a far cry from the Bank of England (BoE) target rate of 2%. The Bank of England has written a letter to the Chancellor as the levels have remained over one percentage point above the target rate. In this letter, the BoE claims that the high level of inflation is down to a rise in VAT earlier this year. The rising cost of energy prices has also contributed to the increased rate of inflation over the year. However, the BoE believes that inflation will ‘fall back sharply’ in the next six months, continuing to fall until the end of next year. It is likely to be a significant length of time before inflation levels reach a ‘normal’ state. To make matters worse, ‘real’ wages are still well below the line of inflation and this is unlikely to change in the near future. Many have been watching their savings pot shrink as the rate of inflation has increased. This minor development could, to an extent, ease the tension for savers. Compare savings with Money Expert.
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