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Inflation falls in September as food price rises cool off

The inflation rate undershot expectations.

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Bread prices were down along with chocolate and meat (PA)

Bread prices were down along with chocolate and meat (PA)

Bread prices were down along with chocolate and meat (PA)

Inflation fell in September, as lower price tags on food eased pressure on household finances.

Figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) fell to 2.4% in September, compared to 2.7% in August.

This was the lowest level since June, when CPI was also 2.4%.

It came as a surprise to economists who were expecting inflation to fall to 2.6%.

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(PA Graphics)

(PA Graphics)

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(PA Graphics)

Sterling was 0.3% down against the US dollar at 1.31 following the news. Versus the euro, the pound was down 0.2% at 1.13.

Mike Hardie, head of inflation at the ONS, said: “Food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak.

“However, it wasn’t all one-way traffic with energy suppliers pushing up their prices.”

September’s rate is closely watched as it is used to calculate increases to business rates in the following April.

Real estate adviser Altus Group said that business rates bills for next year will increase by £728.2 million in England, with over £186 million shouldered by the retail sector.

The lower than expected inflation rate means July’s earnings growth figure of 2.6% will likely be used to calculate State Pension increases for 2019 under the Government’s triple-lock policy.

The annual State Pension is therefore expected to rise to £8,767.20.

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(PA Graphics)

(PA Graphics)

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(PA Graphics)

Economists said that a cooling off in food price rises had contributed to September’s lower inflation figure.

The price of food and non-alcoholic beverages fell 0.2% month-on-month compared to a 0.8% rise during the same period last year.

Some of the biggest drops were seen in sweet treats such as chocolate, with prices down 1.4%. Bread and cereals and meat also notably declined by 0.9% and 0.4% respectively.

Recreation and culture prices returned to more normal levels, growing by just 0.3% compared to 0.8% a year earlier.

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(PA Graphics)

(PA Graphics)

Press Association Images

(PA Graphics)

Cultural services, which includes theatre tickets, fell 2.5% while games, toys and hobbies rose just 1.6%, compared to a 4.4% rise in September last year.

Transport services were down 9.7%, after falling 7.8% last year.

Prices for trips made by sea and waterway were especially hard-hit, dropping 26.5% compared to a decline of 15.2% last year.

Meanwhile, the downward trend in air travel continued, dipping 27.3% following a 26.7% fall a year earlier.

The drag on inflation was partially offset by increases in electricity and gas prices.

Electricity rose 1.8% and gas was up 1.2%, whereas both were flat this time last year.

At the pumps, motorists were also facing higher fuel costs last month, with petrol up by 1.7p per litre on the month to 130.3p per litre.

Diesel also rose by 1.5p to 134.3p per litre.

Howard Archer, chief economic adviser at EY Item Club, said: “September’s drop reinforces belief that August likely marked the 2018 peak in inflation, but it could prove relatively sticky in the near term. This is likely to be the consequence of a higher oil price, previously announced rises in domestic energy prices and recent sterling weakness.

“There is also the risk that food prices could move back up as a result of the summer’s heatwave in the UK and Europe following on from severe cold weather in the first quarter.”

The Retail Prices Index (RPI), a separate measure of inflation, was 3.3% last month, down from 3.5% in August.

The Consumer Prices Index including owner-occupiers’ housing costs (CPIH) – the ONS’ preferred measure of inflation – was 2.2% in September, down from 2.4% in August.

Growth was particularly strong in the East and West Midlands but the slowdown in London and the East of England continued.

PA