Biggest fall in inflation for 16 years

Inflation is now dropping at its fastest rate for 16 years thanks to falling fuel prices, official figures showed today.

The Consumer Prices Index (CPI) - the Government's official benchmark of the cost of living - slowed to 4.5 per cent in October from 5.2 per cent the previous month.

The 0.7 per cent decline - much bigger than economists expected - is the biggest monthly drop since April 1992, the Office for National Statistics (ONS) said.

As crude oil prices plummet from their record highs of mid-July, the average price of a litre of petrol fell 7.1p to 104.5p in the month to October, with diesel dropping 7p to an average 116.3p.



Although CPI is still more than double the Bank of England's 2 per cent target, the bigger-than-expected monthly fall brings home warnings of the threat of deflation - negative inflation - next year from Bank Governor Mervyn King and Prime Minister Gordon Brown.

Soaring food, energy and petrol costs have pushed the CPI to record highs this year but today's lower figure also reflected falling meat prices in October as supermarkets cut prices, compared with 12 months earlier when costs were on the way up.

Meanwhile, the lower crude prices saw transport costs ease at their quickest rate for almost 20 years as the cost of sea and air transport as well as air fares fell.

The wider measure of inflation, the Retail Prices Index, fell to 4.2 per cent in October from 5 per cent the previous month - the biggest slowdown in the annual rate since January 1993.

Falling fuel costs also contributed to the decline but the RPI also includes house prices hit by the ailing property market.

Mr King warned in the Bank's latest inflation predictions last week that this rate was "very likely" to turn negative next year.

The Bank has warned of a danger of undershooting the CPI's 2 per cent target next year as prices fall in a looming recession - signalling the prospect of further rate cuts to come from the current 53-year low of 3 per cent.



Paul Kenny, general secretary of the GMB union, said: "That inflation is now coming down after the record levels of price rises over the summer is proof that the impact of speculation in oil and foodstuffs has been massively underestimated by the public authorities in driving inflation up in the first place.

"The fact that oil was 160 dollars a barrel just a few months ago and is now down to 60 dollars a barrel simply underlines the extent to which hedge funds and other speculators drove the price up using the London loophole that allows unregulated speculation.

"Enormous damage has been caused to the household budgets of GMB members, the public and industry generally. It has been a contributory factor to the current economic downturn.

"Urgent action is now needed to get oil, gas and electricity prices back down to where they were last spring. We need an energy regulator with the power to cut prices and we need it now. We also need action taken to outlaw speculation in commodity markets.

"Never again must the UK Government allow UK consumers to be taken for a ride by the speculators."

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