Inflation Falls to 5 Year Low

Lower petrol prices and food costs helped to reduce the annual inflation rate providing some respite for households who have seen little or no wage inflation since the credit crisis

Morningstar News Team 14 October, 2014 | 11:56AM

UK inflation slowed to a five-year low in September, the Office for National Statistics showed. Consumer price inflation eased more-than-expected to 1.2% in September from 1.5% in August.

Lower petrol prices and the ongoing supermarket price war helped to reduce the annual inflation rate providing some respite for households who have seen little or no wage inflation since the credit crisis.

Economists had forecast the CPI inflation rate to slow marginally to 1.4%. Month-on-month, consumer prices remained flat in September versus 0.4% rise in August. Prices were expected to grow 0.2%.

Calum Bennie, savings expert at Scottish Friendly says that the significant drop in inflation means that interest rates will not be rising any time soon.

“Yet again inflation has dropped, this time by a relatively significant amount, indicating that interest rates will not rise too sharply too soon. According to our latest disposable income index, people currently have just 8% of their salaries left over each month after essentials are paid for,” he said.

“However, even with this drop in inflation, prices continue to rise ahead of wage increases and many could in fact feel worse off as we enter the festive season.”

While the drop in inflation is bad news for savers it will be welcomed by borrowers fearing an imminent rate rise.

Chris Williams, of online investment firm Wealth Horizon said the ongoing fall in inflation is prompting a stay of execution for those borrowers who have been anticipating a potential rise in interest rates.

But Williams warned these circumstances cannot last forever: “The MPC are likely to keep a keen eye on the housing market and inflation expectations data to ensure that any hike in interest rates is not delayed too long.”

Most commentators are agreed that interest rate rises will now not happen until 2015 – and then probably not until the beginning of the second quarter of next year. 

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