Economy: CPI inflation rate falls to lowest level in four years

CPI inflation fell to a four-year low of 2.1% last month.

CPI inflation fell to a four-year low of 2.1% last month. - Credit: PA

Inflation fell to a four-year low of 2.1% in November as the rise in the price of food eased, official figures revealed today.

The Consumer Prices Index rate (CPI) has not been lower since November 2009, when it stood at 1.9%.

Today’s figure from the Office for National Statistics (ONS) will ease pressure on the Bank of England as it brings inflation closer to its 2% target.

However, one reason behind the decline is that large rises in household energy bills have yet to take effect. Tthese are likely to make a large upward contribution in December’s figures.

The price of food was flat in November compared with the month before, while the annual rate of inflation in the sector fell to 3% from 4.3% in October.

The lower rate comes partly because of comparisons with last year when poor weather affected crops and pushed up prices more steeply.

The slowdown in food inflation should provide a crumb of comfort to squeezed households as they stock up ahead of Christmas.

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Cost-of-living increases continue to outstrip regular pay rises, with the last published figures showing wage growth at 0.8%.

Meanwhile, the cost of filling a Christmas stocking has increased, with games, toys and hobbies up 2.8% on October, taking the annual increase in prices in the sector up to 1.8%.

Restaurants and hotels increasing their rates by a smaller amount made a downward contribution to inflation.

Petrol prices also fell in November, but less steeply than last year, meaning they made an upward contribution to the overall rate.

A separate measure of inflation, the retail prices index (RPI), remained the same at 2.6%.

A new measure of inflation, CPIH, which includes housing costs, fell from 2% to 1.9%. Another new measure, RPIJ, rose from 1.9% to 2%.

Samuel Tombs, UK economist at Capital Economics, said CPI looked set to dip below the 2% target in 2014.

He said: “As a result, even if earnings growth recovers only marginally next year, an end to the squeeze on real earnings is finally in sight.”

The fall in November “confirms that the economy is enjoying a favourable mix of strong growth and low inflation.”

While energy bills may cause headline inflation to edge up in December’s figures, price pressures across the rest of the economy still seemed to be weakening.

A fall in global agricultural commodity prices suggested food inflation could fall close to zero in 2014, he added.

Howard Archer, of IHS Global Insight, said: “The Bank of England will likely be reassured to see consumer price inflation dipping to 2.1% in November.”

Ultra-low interest rates would have to be reconsidered by policy makers if inflation threatened to spiral.

A Treasury spokesman said: “Inflation has fallen to its lowest level in four years. The Government’s long-term economic plan is working.

“All parts of the economy are growing, the deficit is falling and jobs are being created. But the job is not done and the Government will go on taking the tough decisions needed to create a sustainable recovery for all.”