Supermarket price war dents inflation

Tim Wallace
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CONSUMER price inflation in the UK dropped slightly in October, figures out yesterday from the Office for National Statistics (ONS) revealed, though it remains well above the Bank of England’s target.

Headline CPI inflation fell from 5.2 per cent in the year to September to five per cent last month.

A 0.9 per cent fall in food prices contributed most to the decline in inflation, accounting for 0.13 percentage points of the 0.2 drop.

“The supermarket price war is working for shoppers,” said the British Retail Consortium’s Stephen Robertson. “There’s been no bigger month-on-month drop in prices for more than two years.”

But clothes prices rose strongly, up five per cent annually.

Meanwhile the cost of living, measured on the retail price index (RPI) rose by 5.4 per cent, slowing from 5.6 per cent in September.

Once direct taxes are taken into account, the tax and price index (TPI) increased by 5.1 per cent over the twelve months to October, slowing from 5.3 per cent in September.

Bank of England governor Sir Mervyn King (pictured below) wrote to George Osborne to explain “the current high level of inflation reflects the increase in VAT earlier this year, and previous steep increases in import and energy prices”.

Without such factors, he believes inflation would be below the two per cent target – the VAT rise alone contributed 0.76 percentage points to CPI and will drop out of the figures in January.

However, January’s planned increase in fuel duty will add almost 0.1 percentage points to inflation, slightly mitigating the fall.

Furthermore, core inflation, stripping out some “temporary” factors like imported food and energy price rises, increased, rising to 3.4 per cent from 3.3 per cent in the year to September.

At five per cent, consumer price inflation remains above earnings growth. Weekly wages in the three months to September, excluding bonuses, rose by just 1.8 per cent.