INFLATION fell to its lowest level for nearly three years last month, but energy price rises are expected to put household finances under pressure once more.
The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) fell to 2.2% in September, down from 2.5% in August and the lowest level since November 2009.
While CPI is now less than half the 5.2% seen a year earlier, it is expected to be pushed higher after four of the “big six” energy firms recently announced price rises.
The ONS said CPI fell last month when hefty energy bill increases seen in 2011 dropped out of the index.
But with SSE, npower, British Gas and Scottish Power having announced moves to increase tariffs, CPI is expected to start rising once more after a year of falls.
The ONS said the increases would likely lead to similar jumps in inflation as seen last year when utility price increases added 0.45% to CPI.
The Treasury said September’s fall would bring “welcome relief to the budgets of families and businesses”.
It added it would announce its final decision on pension and benefit increases in December.
Economist Vicky Redwood, at Capital Economics, said while inflation had fallen close to the Government’s 2% target, the decrease was likely to be “the last for a while”.
However, she still expects CPI to fall below 2% in the coming months due to wider economic pressures.
Howard Archer, chief economist at IHS Global Insight, said: “This may very well be as good as it gets on the consumer price inflation for the time being as we suspect it could be pushed back above 2.5% in the near term by rising utility prices, likely higher food prices due to poor grain harvests and elevated petrol prices.”
He added that rising inflation will hit Britain’s economic recovery hopes by putting pressure on consumer spending before starting to retreat in the second half of 2013.
Trade unions were unimpressed with the news of the fall in inflation, saying it remains higher than UK wage growth.
Brendan Barber, TUC general secretary, said: “This fall in inflation is welcome. However, these figures should be seen in the context of continuing real wage falls, which have meant families getting poorer every month for the last three years.”
Experts believe the prospect of rising inflation will make it harder for the Bank of England to decide whether to take further economy-boosting measures through quantitative easing (QE).
Victoria Clarke, at Investec Securities, said while it would be a “close call”, she still expects the Bank to increase QE by £50bn to £425bn in November as it seeks to support recovery.
