Inflation is 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% in October from 5.2% the previous month.
The 0.7% decline — far 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 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 down 7p to an average 116.3p.
Although CPI is still more than double the Bank of England’s 2% 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.
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% 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%.
Paul Kenny, general secretary of the GMB union, said: “Urgent action is needed to get oil, gas and electricity prices back down to where they were last spring.
“Never again must the UK Government allow UK consumers to be taken for a ride by the speculators.”