Britain enjoying longest period of price stability since the war

Britain has enjoyed its longest period of low inflation since the Second World War, according to official figures published yesterday that showed it had taken 19 years for prices to double.

The index of the level of prices of goods and services that households buy has taken 236 months to double, between January 1987 and September this year.

It outstrips the 104 months it took prices to double between June 1978 and January 1987 and was more than four times slower than the 54 months it took after the Opec oil crisis, when prices doubled between December 1973 and June 1978.

However the breakdown of the figures shows that the slow rate of increase was only thanks to the fact that prices of goods such as clothes, shoes and computers fell over the past two decades. This helped to offset rises of as much as 250 per cent in items such as tobacco and housing. Heating costs also rose faster than inflation in general.

The figures will reignite the debate over whether the headline rates of inflation used by the Bank of England to set interest rates and by the Government to fix benefit payments reflects the inflation actually endured by various parts of society.

"It goes to the argument that one figure does not fit all," said Shona Dobbie, head of the research unit at the Alliance Trust, an investment firm. "What we have seen is clothing and some audio-visual and computer equipment falling and that is clearly helping the younger age groups get the benefits of low inflation.

"But the elderly are spending a higher proportion of their income on goods such as food, drink and heating that have seen higher rises in costs."

This year The Independent designed its own index of non-discretionary goods and services - items such as food and gas bills - which showed that at one point in 2004 it was rising at 5.3 per cent, more than four times the official measure of 1.2 per cent.

Economists said that while the pace of price rises had slowed in recent years the authorities had still only achieved partial success in the fight against inflation.

"It has only taken 20 years for people's purchasing power to be halved," said Robert Barrie, head of European Economics at Credit Suisse. "It is not as bad as it has been when the economy was run so badly it only took a few years to halve it.

"If you have been squirreling away money under the mattress, you are going to find you won't have as much as you thought."

He said it showed the success that the Bank of England had had since 1992 when the Government set an inflation target, and particularly since 1997 when it gave the Bank the power to set rates. Prices have risen 27 per cent under Labour.

Andrew Smith, chief economist at the accountant KPMG, said it showed the balance had shifted between savers and borrowers between periods of low and high inflation.

While high inflation eroded savings, it also reduced the size of people's debt - particularly their mortgage. "When I was young, you knew you could stretch to get a higher mortgage because after a few years eating beans on toast [to save money] inflation would have eroded your debt," he said.

"Now people who have geared up to buy a home will find themselves eating beans on toast for 10 years before they find their debt has been eroded away."

The figures also prove one popular view - the price of a stamp rises in line with inflation. The index for postage costs has risen from 100 to 200.2, compared with 200.1 for all goods and services.