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Inflation at a five-year low in September

CONSUMER price inflation plummeted in September to a five-year low, though economists warned inflation was more likely to overshoot than undershoot the target of two per cent in the next few quarters.<br /><br />Consumer Price Index (CPI) annual inflation fell to 1.1 per cent in September, down from 1.6 per cent in August and falling short of analysts&rsquo; forecasts of an easing to 1.3 per cent. <br /><br />The annual figure came after prices remained unchanged on a month-by-month basis in September, the lowest rate of change since records began in 1996.<br /><br />The Office for National Statistics (ONS) said the fall was primarily due to downward pressure from static household bills for gas and electricity, which spiked this time last year due to suppliers increasing their prices.<br /><br />Meanwhile, the retail price index (RPI) &ndash; which is used to calculate pensions and state benefits &ndash; showed an annual inflation rate of -1.4 per cent, down from 1.3 per cent fall in August.<br /><br />But economists said that Bank of England governor Mervyn King was unlikely to have to write a letter to chancellor Alistair Darling later in the year, explaining away a drop in CPI inflation below one per cent.<br /><br />&ldquo;Even with this figure, the general pattern is more of inflation overshoots than inflation undershoots,&rdquo; said Citigroup economist Michael Saunders, who expects the October figure to rise again to 1.5 per cent.<br /><br />Simon Ward, chief economist at Henderson, added: &ldquo;Inflation is likely to climb sharply over the next few months, with a risk that it breaches three per cent in January.&rdquo;<br /><br /><strong>FAST FACTS </strong> CONSUMER PRICES INDEX<br />&9679; The CPI is the measure for the government&rsquo;s UK inflation target of 2 per cent<br /><br />&9679; If inflation falls below 1 per cent or above 3 per cent, Bank of England governor Mervyn King must write an explanatory letter to the chancellor