Inflation surprisingly fell in March, CPI (Consumer Prices Index) fell to 4% from 4.4% in February and RPI (Retail prices Index) slipped from 5.5% last month to 5.3%.
RPI includes the cost of mortgages, which is not included in the CPI measure.
The falls come as something of a surprise, over the past few months the trend in inflation has been upwards and most experts expected rises to continue for some time to come. The Office for National Statistics (ONS) who produce the inflation figures said that the fall was largely down to a reduction in the price of food and non alcoholic drinks compared to this time last year.
The news will ease the pressure on the Bank of England’s Monetary Policy Committee (MPC) to increase interest rates.
Over recent months more members of the MPC have voted to increase interest rates with three of the nine strong committee voting to increase rates last month.
If indeed the latest inflation news delays the much trailed rise in interest rates it will be welcomed by mortgage holders and business alike who will not want to see an increase to their cost of borrowing.
Savers will however continue to feel the effects of the low interest rates, although the fall in inflation may offer a glimmer of hope that ‘real returns’ on savings may be possible in the not too distant future.
Months to come
The Bank of England believes inflation will fall towards the end of 2011 as “temporary external factors” have less of an impact. In early 2012 the effect of the VAT increase of January 2011 will also fall out of the calculations, further reducing inflation.
Only time will tell whether today’s unexpected fall in inflation rates will be the turning point and mark the beginning of a period of reducing inflation or if it is just a blip on an otherwise upward trend.