Tuesday, March 25, 2014

Inflation falls to four-year low thanks to lower petrol prices


CPI - 1.7% in February - has not been lower since October 2009, when it stood at 1.5%




Lower petrol prices helped inflation fall to a new four-year low of 1.7% in February and narrow the prolonged squeeze on wages, official figures showed today.


It was the fifth monthly slowdown in a row and will support hopes that the real-term decline in pay is coming to an end - with private sector earnings already appearing to have caught up.


The Consumer Prices Index (CPI) rate fell from 1.9% in January as it continued to undershoot the Bank of England’s target of 2%, the Office for National Statistics said.


CPI has not been lower since October 2009, when it stood at 1.5%.


Wage growth has not been higher than inflation for nearly four years but last week official Budget forecasts predicted that earnings would return to real terms growth later this year.


The fall in inflation to 1.7% was widely expected by economists.


It suggests private sector pay growth - which was also 1.7% in the three months to January - has already caught up.


However total wages are only rising by 1.4%, with ordinary public sector workers seeing a rise of just 0.9%, according to the latest figures.


Earnings have not increased at a higher rate than inflation since a brief spike in March and April 2010 and have not consistently been improving since 2008.


The latest inflation figure was partly driven down by a fall in petrol prices of 0.8p per litre between January and February this year, compared with a 4p rise for the same period in 2013.


Diesel was also down by 0.8p, compared with a 3.7p increase the year before, the ONS said.


Meanwhile, energy bills saw a combination of prices and cuts, compared with an overall rise for the same period in 2013.


The price of men’s and women’s outerwear also rose by less than last year.


In contrast, large furniture became more expensive and books were 6.6% dearer on the year. There was also upward pressure on inflation from tablet computers and printers.


Meanwhile, inflation in food and non-alcoholic drinks fell to a near four-year low of 1.8%, the lowest since May 2010 when it was the same. It was last lower in February 2010.


A separate measure of inflation, the Retail Prices Index, which includes housing costs, fell to 2.7% in February from 2.8% in January.


A new measure of inflation, CPIH, which also includes housing costs, fell to 1.6%, down from 1.8% in January.


Another new measure, RPIJ, fell to 2% from 2.1% in January.


Prime Minister David Cameron tweeted: ``It's good to see inflation falling again. Our long term economic plan is helping provide stability and security for hard-working people.''


Danny Alexander, Chief Secretary to the Treasury, said: “Today’s inflation numbers add to the growing tide of encouraging economic statistics over recent months.


“There is much more to be done and there are more difficult decisions ahead, but this shows that our long-term plan to repair the British economy is working.


“Falling inflation eases the pressure on family budgets and strengthens the economy.”


Howard Archer, chief UK and European economist at IHS Global Insight, said the fall in inflation would leave room for the Bank of England to hold interest rates down to support the economic recovery.


He said rates were likely to stay at 0.5% until early next year despite the improved growth in the economy, with the Bank not taking sustained recovery for granted.


Samuel Tombs of Capital Economics said inflation was likely to fall even further.


“In our view, a favourable combination of lower import prices, flat commodity prices and recovering productivity is likely to help CPI inflation fall further, perhaps to about 1% by the end of the year.”



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