16th September 2014
The annual rate of inflation fell to its lowest level for five years in August as a result of a drop in the cost of petrol, food and non-alcoholic drinks.
Consumer Price Index (CPI) inflation fell to 1.5 per cent from 1.6 per cent in August, the Office for National Statistics revealed.
The drop relieves pressure on the Bank of England remains to raise interest rates in order to keep CPI inflation at or below its target rate of 2 per cent.
However, each household will typically need to spend an extra £381 a year to maintain their standard of living compared to a year ago, according to MGM Advantage, the retirement specialist.
Retail Price Index (RPI) inflation dropped from 2.5 per cent to 2.4 per cent in August.
Competition between supermarket chains helped to push prices of food and non-alcoholic drinks down by 1.1 per cent, which is the steepest fall for more than a decade. This was also partly due to the fact that cold weather increased food prices a year ago.
Yet clothing, transport and alcohol all rose in cost by more than the overall inflation rate.
Frances O’Grady, general secretary of the TUC, says: “With inflation well under control there is no case for raising interest rates any time soon. It would dump higher mortgage costs on households still feeling a squeeze on their living standards and risk choking off economic recovery.”
She adds: “As the Governor of the Bank of England said last week, British workers have faced pay cuts deeper than at any time since the 1920s. The priority now has to be wage rises to ensure a sustained economic recovery and a return to growing living standards.”
Meanwhile, Aston Goodey, of MGM Advantage, says that until we see some real wage growth, people will continue to feel the pinch of the cost of living.
He adds: “We shouldn’t ignore those in retirement, who are typically on fixed incomes. They face the challenge of not only insuring their savings last as long as they do, but also need to try and maintain a standard of living.”