Inflation drops but above 2pc for 30th month

Ben Southwood
Follow Ben
INFLATION dived in September, data revealed yesterday, bringing it closer to the Bank of England target is has exceeded for 30 consecutive months.

Yearly inflation, as measured by the consumer prices index (CPI), slid to 2.2 per cent in September, the Office for National Statistics (ONS) said, down from 2.5 per cent in August.

Driving the slower pace of price rises was a much more subdued set of utilities, fuel and electricity bill increases in the year to September compared to the year to August – 2.2 per cent compared to 5.6 per cent. Behind this reduction is the fact that last September’s big hikes in energy bills have filtered through the index.

This slowdown in energy inflation was working against faster inflation in recreation and culture and transport – but ONS statisticians told City A.M. that transport rises were due to air fares – whose prices are notoriously volatile.

Some analysts said the fall indicated inflation would stay close to – or even go below – its two per cent target for coming years, and the sustained period of above-target results was at an end.

“We believe that the long period of UK inflation stickiness is over,” said Michael Saunders at Citi. “Inflation is likely to be around target on average in 2013 even with recently-announced energy price hikes, dropping below target later on.”

But others said September’s two and a half year low was likely to be the lowest inflation got. “CPI inflation may have got within touching distance of the two per cent target,” said Victoria Clarke at Investec, “But this is where the good news probably stops.” Clarke cited tripled tuition fees as well as utility and energy price hikes to support her claim.

The retail prices index (RPI), which is calculated with a different methodology to CPI, and includes mortgage costs in its basket of goods, also ticked down in September, from 2.9 per cent to 2.6 per cent. RPI also feeds into business rates, which will be raised in line with this month’s rise. The British Chambers of Commerce said this “inflexible” system should be ended, since “incessant rates rises” harm the chances of businesses creating growth.