Inflation falls to 5%

| November 15, 2011
Inflation falls to 5%

Inflation fell to 5 per cent in October helped by a price war between major supermarkets, with food and petrol prices being slashed as they competed with each other.

The latest figures from the Office for National Statistics show a 5 per rise in the consumer-price index in the 12 months to October, compared with a rise of 5.2% in September.

The rate of inflation also slowed on the retail prices index to 5.4% in the 12 months to October, compared with 5.6% in September.

The retail prices index includes mortgage interest payments.

Good harvests helped to keep food prices down and the cost of air travel and petrol also fell due to a fall in the price of crude oil.

This helped to offset an increase in energy prices, although a rise in domestic fuel costs is expected to contribute to an increase in inflation in November.

Npower’s price increase came into effect in October, following the lead of British Gas, SSE, Scottish Power and E.ON, while EDF plans to increase its prices this month.

Despite October’s fall, inflation is still significantly above the Bank of England’s 2% annual target and the Bank’s governor, Mervyn King is due to write to Chancellor of the Exchequer, George Osborne, to explain why the target has been exceeded.

The Bank expects inflation to fall in 2012 as prices decline and the effect of the VAT increase from 17.5 per cent to 20 per cent in January is no longer felt.

In its quarterly inflation report, the Bank is expected to comment on the likelihood of the UK economy falling into a double-dip recession.

It is anticipated that growth forecasts will be cut in the face of the ongoing crisis in the eurozone and weak manufacturing, trade and services figures.

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