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Inflation falls to 5% thanks to price war

An aggressive supermarket price war helped push down inflation last month amid signs that the rise in the cost of living appears to have passed its peak.

The Consumer Price Index (CPI) rate of inflation fell to 5% in October, the Office for National Statistics (ONS) said, slightly down on the three-year high of 5.2% in September.

"Significant and widespread discounting" by supermarkets, as well as a strong harvest for some produce, saw the biggest fall in food prices for a September to October period since 1996, the ONS said.

But another utility tariff hike from big six supplier npower continued to pile pressure on consumers, who are struggling to cope with average wage growth far below the rate of inflation.

Wilfred Mitchell, policy chairman of the Federation of Small Businesses, said: "Although a positive sign that inflation has fallen slightly, it remains to be a cause for concern.

"Combined high energy prices and the impending fuel duty rise will continue to have an impact on businesses and households alike into the new year.

"With many employers unable to pay a wage increase, above-target inflation will pile pressure on already cash-strapped households.

"We urge the government to introduce a true fuel duty stabiliser and to review the price increases in the energy market in order to help households and businesses better plan their finances."

David Kern, chief economist at the British Chambers of Commerce, said: "These figures support our view that inflation is probably past its peak, and a sharp decline can be expected during the course of 2012."

Despite the slight drop, Bank of England governor Sir Mervyn King was required to pen a letter of explanation to the Chancellor as inflation still remains over double the government's 2% target.

Sir Mervyn, who issued the letter as he was formally knighted at Buckingham Palace, said that without temporary factors such as the impact of the VAT increase, inflation would be below 2% and forecast that the rate will "fall back sharply in the next six months or so".