Rate of inflation falls back into negative territory

The rate of CPI inflation fell to minus 1% last month.

The rate of CPI inflation fell to minus 1% last month. - Credit: PA

Inflation dipped back in to negative territory last month as falls in food and petrol prices helped to push down the cost of living.

The Consumer Price Index (CPI) rate of inflation fell from zero in August to minus 0.1%, representing the lowest equivalent figure since March 1960, according to the Office for National Statistics.

This means the Bank of England continues to face little pressure to raise interest rates, although some officials think underlying inflationary pressure is building as the economy recovers.

Inflation was pulled lower as food prices fell by 2.5% in the year to September as the supermarket price wars continued to grip the grocery industry. It was the 15th month in a row of falling prices in this sector, extending the longest since records began in 1989.

Petrol prices also dragged inflation lower, with prices falling by 3.7p per litre over the year, while diesel prices at 110.2p per litre are at their lowest level since December 2009.

The ONS figures also showed that the Retail Prices Index (RPI) fell to 0.8% in September from 1.1% in August.

September’s CPI inflation figure is used to calculate the following year’s rises in State pensions, although the Government’s “triple lock” ensures an increase of at least 2.5% as the guarantee means it will increase by whichever is the greater out of average earnings, September’s inflation rate or 2.5%.

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Muted CPI inflation leaves the prospect of a rise in interest rates, which have been at 0.5% for more than six years, unlikely well into next year.

It will spare borrowers higher repayment costs, but continue to hurt savers whose nest eggs have been eaten away by years of low rates.

Expectations over when rates will rise have been pushed back by turbulence in the global markets, shaken by signs of a slowdown in China, as well as gloom over the UK economy after third quarter growth forecasts have been scaled back in recent weeks.

Bank of England governor Mark Carney said in August he “wouldn’t be surprised if we have another month or two of negative inflation” after it fell to minus 0.1% in April. However, he maintained that the likely timing of a rate hike was “drawing closer”.

Inflation has been hovering around zero in recent months amid the continuing supermarket price war keeping food prices down, as well as the slump in the global oil price dragging fuel costs lower.

The ONS said inflation was also dragged in to negative territory last month as seasonal price rises in fashion and footwear shops were more muted, while household gas prices also fell by 2.1% over the period. In September, the combined effect of food and motor fuels in total reduced inflation by 0.8%.

ONS head of CPI Richard Campbell said: “Though CPI has turned very slightly negative this month, the bigger picture is of a broadly flat inflation rate since the beginning of the year.

“The main downward pressures on CPI came from clothing, which rose more slowly this September than in recent years, and falling petrol prices.”