Rate of inflation falls again, although a rise may be round the corner


Rate of inflation falls again, although a rise may be round the cornerThe rate of inflation slowed again in September, although some experts are now predicting that last month marks the bottom of the current cycle, and we can expect prices to rise more quickly in months to come.

The Consumer Prices Index (CPI) fell to 2.2% in September from 2.5% in August. The CPI measure of inflation is now at its lowest rate since September 2009 and close to the Bank of England’s 2% target.

The Retail Prices Index (RPI), which includes mortgage interest payments, also fell, this time from 2.9% in August to 2.6 in September.

The slowdown in both measures is mainly due to previous sharp rises in the cost of gas and electricity falling out of the calculations.

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The figures are not good news for everyone however.

The fall in the CPI rate of inflation is bad news for many people drawing state benefits, as the CPI rate of inflation in September, is used to calculate the increase of benefits such as Jobseekers Allowance in April next year. The State Pension will also be affected, with the slowdown in the rate of inflation, meaning that the government’s ‘triple lock’ will come into play, resulting a rise of 2.5%, equivalent to an extra £2.69 per week.

Inflationary pressures round the corner

Despite today’s falls in the rate of inflation some economic experts have warned that higher energy, food and petrol prices could push up the rate of inflation in months to come.

Dr Ros Altman Director General of Saga, said: “Inflation has fallen this month, reflecting a sharp decline in electricity and gas price inflation as last September’s price rises have dropped out of the annual rate of inflation. However, with price rises announced for later this year, this is likely to prove a short-lived easing of inflation. Indeed, we expect that this is the low point in the current inflation cycle.”

Good news for savers

The slowdown in the rate of inflation is especially good news for savers, who for months, have struggled against the ravages of relatively high inflation, and more latterly, have had to content with falling savings account interest rates.

The latest falls in the rate of inflation mean that for the first time ever 50% tax payers can get a real, after tax, return on their savings, although a fixed rate of at least three years is still needed.

However, it isn’t all good news, many savers are also pensioners, who are more affected than other groups by high inflation, Dr Altman again: “Indeed, the cost of living in September 2012, compared with five years ago in September 2007, when Northern Rock failed,  has risen substantially more for the over-50s than the overall population.”

Altman continued: “Anyone with a fixed income or trying to live off their savings will be concerned that inflation is eroding their spending power, although of course borrowers will be benefiting from a lower real value of their debts.”