CPI inflation falls to record low of 0.3%

The Consumer Price Index (CPI) measure of inflation has not been lower since the start of records in 1989, according to the Office for National Statistics (ONS).

Food and petrol prices dropped sharply to keep a lid on the rise in the cost of living, meaning that a basket of goods and services that cost £100 in January 2014 would have been just 30p more last month.

According to an experimental model created by the ONS last year, CPI was last lower in March 1960 when it was minus 0.6%.

Bank of England forecasts suggest inflation will turn negative for the first time in five decades during the next few months before rebounding later in 2015.

However, January’s figures showed that but for food and fuel prices, CPI would have been 0.9% higher, with core inflation stripping out these factors actually creeping up.

The supermarket price war saw food and non-alcoholic beverage prices fall by 2.5% year-on-year, the steepest rate on records going back to 1997. It was driven by a 3.5% fall in the cost of milk as warring supermarkets cut the cost of two-pint cartons.

Transport costs fell by 2.8% year on year, the steepest rate on record, driven by a 16.2% fall in fuels. The average petrol price fell by 8.5p per litre over the course of January while for diesel it fell by 7.3p, leaving petrol at 108.3p, its lowest level since November 2009 and diesel at 115.6p, its lowest since February 2010.

There was also cheer for drinkers with the price of beer, which usually rises in the new year, falling. However, clothes prices fell by less than usual in the January sales after much of the discounting in the sector having already taken place before Christmas.

The rate of Retail Price Index inflation fell to 1.1% last month from 1.6% in December, the ONS said.

Meanwhile, a separate index showed the price of goods bought and sold by UK manufacturers continued to fall in January, driven by the slide in crude oil, which dropped by 50%, its steepest year-on-year rate on record.