UK Inflation falls to lowest level for 5 years, according to ONS

Inflation has fallen to its lowest level in 5 years, with the declining cost of fuel and a supermarket price battle thought to be the principal causes.

The consumer price index (CPI) fell to 1.2%, down from Augustís reading of 1.5%, representing a fall in consumer price growth to its lowest level since September 2009 ñ and excluding that particularly chaotic time, for a decade, according to the Office for National Statistics (ONS) latest data.

Financial experts were thrown by the extent of the fall in consumer price growth, with the supermarket giantsí persistent price slashing held responsible to some degree for a sweeping plunge in food prices projected at 1.4% on the previous year. Petrol prices also dropped by 6% in the 12 months to September, with the lagging price of global oil and cheaper imports as a result of an increase in sterling extensively contributing to falling fuel costs.

Were it not for reductions in fuel costs and food prices, the CPI index is would stand at 1.6% – a third higher than its actual value.

With the pound weakening against both the euro and the dollar, economists have rallied to review their projections of when the Bank of England (BoE) will raise interest rates from its current emergency level of 0.5%. It was thought the BoE would make its move in the early stages of 2015, however given the CPIís performance in September, economists have pushed this date back to at least mid-2015.

The BoE are expected to adhere to the governmentís CPI goal of 2.0%. If this goal is missed by more than 0.1% in either direction, Mark Carney, governor of the BoE, is obligated to pen a letter to Chancellor Osborne in which he must identify the perceived causes and set out a suggest course of action to remedy the predicament.

ìWe have long been expecting the Bank of England to first raise interest rates from 0.50% to 0.75% in February ñ but it is looking ever more likely that the Bank will delay acting until nearer mid-year,î said Howard Archer, an economist at IHS Global Insight.

ìMuch will clearly depend on just how well UK growth holds up over the coming weeks and months, as well as how much wages move up in the 2015 pay settlements,î he added.

The ONS listed amongst its ëkeyí influences on the lull in consumer price growth: price falls across the entire trade sector – particularly in sea and air tariffs, and price reductions in numerous household goods, most notably shrinking selling values of electronic merchandises such as laptops.

Pensioners given a boostÖor have they?

However, weary workers and elderly folk can seemingly take heart from the Coalitionís ëtriple lockí assurance, which will catalyse a rise in state pensions by 2.5% of average earnings or £2.85 dependent on which figure is larger due to the disparity between the CPI index figure and the governmentís target figure.

The treasury jumped at the opportunity to laud the ëtriple lockí scheme, incidentally a LibDem brainchild, and declared the fall in consumer price growth as ëevidence that the governmentís long term economic plan is workingí

A treasury spokesman said on the matter: ìThe triple-lock pension guarantee that this government has put in place means the basic state pension will rise by at least 2.5% next April ñ double the rate of inflation. That means around an extra £150 more in the pockets next year of those that have worked hard all their lives.

However not all the older generation have welcomed the increase in state pension, as the National Pensioners Convention (NPC) have claimed government decision to tie the state pension to the CPI, away from the RPI, have cost elderly folk their deserved increase to their pensions.

The NPC said: ìMany older people are struggling with the rising costs of living, and our pensions are simply not high enough. Yet every day, commentators claim older people have escaped the austerity measures Ö Without action to raise the basic state pension and then ensure it maintains its purchasing power, Iím afraid the government is simply letting it wither on the vine.î

As for the supermarkets, it appears that giants such as Asda and Tesco are less concerned with profits and yearly turnover than with consuming the most market share. This is reinforced by a report from the British Retail Consortium (BRC), which indicated that Septemberís hot weather drove retail sales to their lowest levels in 6 years. According to the BRC, this is due to consumersí disinclination to purchase winter garments due to the balmy September days coupled with the supermarket price warís overproduction of bargain foodstuffs.

With stagnant wage growth certainly not driving up prices, clamour has intensified even further for policymakers. One NHS paramedic, who preferred to remain unnamed, told moneyexpert he hadnít received a pay rise in over 6 years, and with ONS data to be released on Wednesday expected to show a mere 0.7% rise in weekly wages between May and August compared with the same period in 2013, the situation continues to look bleak.

The BoE has stressed that it does not expect inflation to meet its government target for at least 3 years. Mr Carney has recently spoken of the BoEís intent to address the impact of weak global demand on the CPI, and time will tell whether policymakers have the answers to the latest inflationary conundrum.

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