Inflation down to lowest point for half a year

INFLATION rose just 2.4 per cent in the year to April on the consumer price index (CPI), defying expectations for a 2.8 per cent increase and hitting its lowest level since September 2012.

The retail price index (RPI) rose 2.9 per cent in the 12 months to April, down from 3.3 per cent.

However, some economists said last month’s drop is unlikely to herald a sustained period of falling inflation.

Petrol, diesel and airfare costs have dipped 0.6 per cent since March, fuelling the fall in the CPI rate.

The largest rises in individual areas came from housing costs, including gas and electricity bills, along with food and beverages. The Office for National Statistics (ONS) said that the rising cost of food might be due to the cold spring.

Prices in education rose by a now-typical 19.7 per cent on the year, as a result of the rise in tuition fees that took effect last autumn.

Education is likely to be form a large contribution to inflation until 2015, as cohorts who paid the earlier fee graduate, replaced by new students paying the higher rate.

A significant proportion of inflation is now made up of administered prices, which are set or heavily regulated by the government. These include tuition fees, alcohol, tobacco and utility bills, all of which saw increases above the headline rate.

The tax and price index (TPI), which includes changes to direct taxation, fell to 1.9 per cent in April from 2.8 per cent in March, the lowest since December 2009.

The highest rate of income tax fell from 50 to 45 per cent in April, and the threshold for income tax also rose.

Despite being lower than in recent months, inflation stayed above the Bank of England’s two per cent target. Former Bank policymaker Andrew Sentance said that volatile fuel prices meant lower inflation was unlikely in the short term. “The drop we have seen in April may not be sustained, particularly when other factors are expected to push inflation up again over the summer,” he said.