Consumer Inflation Drops By Record Rate To 4.5%

UK inflation has fallen by a record rate in October to 4.5%, as oil, food and transport costs dropped, official figures have revealed.

The Consumer Prices Index (CPI) measure dropped in September, from the 16-year peak of 5.2%.

The Office for National Statistics said a drastic fall in transport costs, along with lower food and fuel process helped push the CPI down to its lowest rate since July.

The Retail Prices Index (RPI), the alternative measure of inflation - sometimes referred to the "headline" rate of inflation - this includes housing costs, fell from 5% to 4.2%. This is the biggest fall since 2003.

Crude oil plummeted from record highs in mid-July, which then saw the average price of a litre of petrol fall from 7.1p to 104.5p in October, and diesel drop by around 7p to an average of 116.3p per litre.

Core inflation - which excludes volatile items like energy, alcohol, tobacco and food - also dropped to 1.9% from 2.2% in September.

This indicates retailers are continuing to cut prices in an attempt to attract consumers as Britain faces an economic recession.

David Kern, chief economist at the British Chambers of Commerce, said: "The declines in inflation were much sharper than the markets were expecting.

"We predict further sharp falls in CPI inflation towards one per cent in the final months of 2009. Deflation would have appalling consequences for British business and for the economy as a whole so it is imperative that the Government and the Bank of England take forceful action."

Mervyn King, the Governor of the Bank of England, said it is now "very likely" that the UK's retail price index will turn negative next year.

(JM)