Inflation stands at lowest for five years

Inflation slumped to a five-year low during September, official figures showed today.

The Consumer Prices Index (CPI) fell from 1.6 per cent to 1.1 per cent over the month, according to the Office for National Statistics (ONS). The measure was last at this level in September 2004.

Inflation dropped further than economists expected in the month and will lead to renewed fears that Bank of England Governor Mervyn King will have to write his first letter to the Chancellor explaining why CPI has undershot the 2 per cent target by more than 1 per cent.

Household energy bills were the biggest contributor to the fall in CPI, as this year's unchanged gas and electricity prices have been compared with big rises in 2008.

Several major energy suppliers hiked their prices in September last year.

The housing and household service sector, which includes energy prices, fell to minus 1.1 per cent across the month, the lowest figure since the current measure of CPI started in 1997.

Food inflation was minus 0.9 per cent between August and September, its largest decline across those two months since 2006.

Meat prices fell in the month, compared with a rise last year, while there was also a small downward effect from fruit, particularly bananas.

Previously transport costs, driven by soaring petrol prices, have kept the CPI rate from falling faster.

Transport remained the biggest upward contributor in the month, as the average price of petrol increased by 2.4p per litre to 106.2p, compared with a fall of 1.7p a year ago.

Second-hand car prices also rose compared with a year before, but these were partially offset by sea and air transport, where seasonal price reductions were lower than a year ago.

The wider Retail Prices Index (RPI) measure, which includes house prices and mortgage interest payments, has been negative since April.

Much lower mortgage interest payments compared with last year have kept the measure below zero.

RPI also lost ground in September, falling to minus 1.4 per cent, compared with a 1.3 per cent decline in August and the ONS said both measures were pulled down by energy prices.