Inflation figures bring hopes of rail fare cuts

The measure of inflation used to calculate many rail fares was in negative territory despite rising in July, official figures showed today.

Retail Prices Index (RPI) rose to minus 1.4 per cent in the month from minus 1.6 per cent in June, according to the Office for National Statistics (ONS).

The headline Consumer Prices Index (CPI) remained the same at 1.8 per cent, staying below the Bank of England's 2 per cent target.

The increase for RPI will come as a surprise to many economists who predicted a further fall for the measure.

July's number is significant because a formula of RPI plus 1 per cent is used the following January to set regulated train fares such as season tickets and some longer distance, off peak tickets.

RPI has fallen much lower than the official measure of inflation because it includes housing costs such as mortgage payments and council tax and has been pulled down by record low interest rates of 0.5 per cent.

The measure was pushed up in the month principally because of motoring costs, including vehicle purchase, car tax and insurance.

The ONS said household goods like furniture also saw prices fall by less than a year ago.

There was a large downward contribution from petrol and oil as the average price of petrol rose by less than a year ago.

Steep climbs in crude oil prices last year reached their peak in July's 147 dollars a barrel record.

Food weighed heavily on both RPI and CPI measures as prices fell this year, compared to last year's rises.

CPI has been on a downward trend since peaking at 5.2 per cent in September last year, but has not fallen as quickly as forecast in recent months due to a weak pound.

Bank of England Governor Mervyn King has warned he expects to have to write to Chancellor Alistair Darling later this year explaining why inflation was more than a percentage point below target.

The ONS said CPI was impacted by increased recreation and culture costs compared to last year - particularly rises in computer games, toys and DVD prices.

This was offset by continuing falls for food and non-alcoholic beverages as prices of meat and vegetables dropped this year compared to last year's hikes.