UK Inflation Eases - 17 October 2012

The rate of inflation in the UK has eased to 2.2% for the month of September, but is still above the Bank of England’s target figure of 2%. The Consumer Price Index (CPI) fell from 2.5% in August to its current level which is the lowest it has been for almost three years. The comparable figure from last September stood at 5.2%.

The September figure is used to set increases in UK state pensions which will rise by a minimum of 2.5% since the government promised that the minimum increase this year would be £2.69 per week (less than the price of a pint of beer in most regions). The data will also feed through to increases in other allowances such as the Jobseeker’s allowance and income support payments, but this will not take place until the next financial year in April.

The broader based Retail Prices Index which includes mortgage payments also fell in September from 2.9% to 2.6% in August, according to the Office for National Statistic which is charged with compiling the data.

The CPI data improvement was largely due to the effect of gas and electricity price rises in 2011 falling out of the calculation window. Recent rises in the prices of these utilities will feed into future inflation data. The August-September period saw the price of fuel rise by 3.9p per litre – in the comparable period in 2011, the rise was just 0.3p per litre.

A low inflation economy is generally seen as a good thing for business – not least because borrowing cost ought to stay low since higher interest rates is a tool frequently used to attempt excessive inflation. Currently, interest rates are at record low levels in an attempt to boost the economy.