16 Oct 2012

Inflation falls, but is poised to rise again

The cost of living fell to a three-year low in September – but recent energy price hikes by four of the big six energy companies, combined with food price rises, will push it back up again.

s the cost of living falls to a three-year low, the rising cost of energy bills will push it back up again (Reuters)

The consumer prices index (CPI), the government’s preferred measure of inflation, fell to 2.2 per cent in September, from 2.5 per cent in August.

The retail prices index (RPI), which includes housing costs, fell to 2.6 per cent from 2.9 per cent in August, according to the Office for National Statistics.

CPI is now less than half the 5.2 per cent it was a year ago, but with four of the big six energy companies raising their prices, the fall in inflation will only be temporary.

Inflation has fallen because big energy price rises in 2011 have now fallen out of the index. These rises are thought to have added 0.45 per cent to CPI.

SSE, npower, British Gas and Scottish Power have announced that they will be increasing their tariffs. It is also thought that rising food prices will have an impact on inflation.

Last fall

Vicky Redwood, chief UK economist at Capital Economics, said: “UK inflation fell to within a whisker of its 2 per cent target in September, although the fall is likely to be the last for a while.

“As expected, the main downward effect came from last year’s rise in utility prices dropping out of the annual comparison.

“Inflation might now edge up a bit over the next couple of months. The recently announced utility price increases will add 0.1 per cent to inflation for each of the next three months.”

The latest fall in inflation is bad news for pensioners and people on benefits because September’s CPI figure is used to calculate what they receive.