Inflation falls to 2.5 per cent

| September 18, 2012 | 0 Comments
Inflation falls to 2.5 per cent

Inflation fell to 2.5 per cent in August, from 2.6 per cent in the previous month, as measured by the Consumer Prices Index (CPI).

The latest official figures from the Office of National Statistics also show that inflation also fell on the Retail Prices Index (RPI) measure, from 3.2 per cent in July to 2.9 per cent in August.

The fall in inflation follows smaller rises in clothing, furniture and gas prices in August which helped to offset an increase in the cost of rail travel and larger rises in petrol prices.

Inflation peaked at 5.2 per cent in September 2011 but has fallen for nine out of the 11 months to August 2012.

An increase in air fares caused it to rise to 2.6 per cent in July 2012.

The ONS warned that inflation could rise again if food and utility bills increase as expected.

Richard Campbell, ONS director, said: “Some of the utility companies are talking about price increases in the next few months, [while] there have been reports of poor harvests in many parts or the world, which could possibly have an impact on food prices.

“Finally, if the oil price continues to go up, we expect that to feed through to petrol and diesel prices.”

The fall in inflation could prompt the Bank of England to launch further quantitative easing to help boost the economy.

The Bank expects inflation to fall below the government target of 2 per cent early in 2013.

Meanwhile the government is considering changes to the benefit system which would see an end to the annual inflation-linked increase in benefit payments.

The state pension and other benefits would be frozen for two years and benefits would then be linked to average earnings rather than inflation.

This would mean a reduction in Jobseeker’s Allowance from its current level of £71 a week, to around £60 a week.

The proposals are part of the government’s efforts to find £10bn of extra savings in the welfare budget.

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