Inflation falls by smallest amount since September

Inflation has fallen again, but by the lowest amount since it last peaked in September 2011.

Between January and February this year the cost of borrowing dipped by 0.2 per cent, reducing the Consumer Prices Index (CPI) rate from 3.6 per cent to 3.4 per cent and the Retail Prices Index figure from 3.9 per cent to 3.7 per cent.

The February figure was the first recorded in which the imposition of a higher VAT rate in January 2010 has had no impact, with the first month of this year seeing the CPI figure plunge as the increase to 20 per cent ceased to be a factor.

It was the fifth month in a row that inflation had fallen, with CPI reaching a highpoint in September 2011 at 5.2 per cent.

One significant contributor to the lower CPI rate in February was the cut in domestic energy prices, while recreation, culture and transport prices all eased. Against this, alcohol and the cost of vegetables rose significantly.

However, the CPI figure remains well above the two per cent target rate set by the Treasury and for people who have seen their pay frozen or rising by less than inflation, incomes have fallen in real terms.

This may mean a growing number struggling to make ends meet as they are financially squeezed, increasingly finding it hard to pay their loans and credit card bills.

And that could mean a debt management plan is needed to make repayments more manageable.

Commenting on the inflation figures, European economist at asset management firm Schroeders Azad Zangana said: "The consensus amongst economist was for a fall to 3.3 per cent, as the increase in prices between the two months was 0.6 per cent was higher than expected." 

However, he added, experts still believe the CPI rate will continue falling and is likely to reach the two per cent target this summer.

By James Francis