Inflation falls to 2.2%

| October 16, 2012
Inflation falls to 2.2%

The rate of inflation on the Consumer Prices Index (CPI) fell to 2.2 per cent last month according to the Office for National Statistics (ONS), its lowest level since November 2009.

In August, CPI inflation, which excludes mortgage interest payments, stood at 2.5 per cent.

The Retail Prices Index (RPI) measure of inflation, which includes mortgage payments, fell to 2.6 per cent in September, from 2.9 per cent in August, the ONS said.

September’s fall in inflation was attributed largely to the effect of energy price rises in 2011 becoming too old to be including in the figures.

However, expected increases in energy bills this winter will put pressure on inflation in the future.

David Kern, chief economist at the British Chambers of Commerce said: “Some of the recent announcements of increases in utility prices and university tuition fees will only affect the October index.

“Falling inflation benefits the UK economy as it reduces the squeeze on businesses and consumers and underpins domestic demand at a time of fiscal austerity and weak growth in the global economy.”

Inflation is still above the government’s target of 2 per cent although it has more than halved since it reached an all-time high in September 2011.

Although inflation has fallen to its lowest level for three years, benefits will still increase faster than wages for those in work, leading to calls for the link between benefits and inflation to be cut.

September’s rate of CPI inflation is used to calculate benefits for the financial year starting in April, although state pension is guaranteed to increase by a minimum of 2.5 per cent.

A proposal that benefits should rise in line with wages instead of inflation is supported by the Conservative Party, but opposed by the Liberal Democrats, causing tension within the coalition government.

Chancellor George Osborne and Secretary of State for Work and Pensions Iain Duncan Smith are discussing the proposal as part of their efforts to cut an extra £10 billion from the welfare bill.

Under the present system, benefits will rise by almost 50 per cent more than the average wage rise of 1.5 per cent, while many workers have had their pay frozen.

However, such a move would reduce the value of benefits in real terms and cause further hardship to those already on low incomes.

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