Inflation Hits 3 Year Low

The Office for National Statistics (ONS) has reported a fall in inflation to a 3 year low for UK Consumer Prices Inflation (CPI) from 1.7% pa in September 2019 to 1.5% in October 2019.

The Consumer Prices Index including owner occupiers housing costs (CPIH) also fell at the same rate 1.5% pa.

The largest downward contribution was from gas, electric and other fuels as a result of changes to the energy price cap.  Other downward contributors where from household equipment and maintenance, furniture costs, recreation and culture.

RPI v CPI

Retail Prices Index (RPI) includes the costs of housing (mortgage interest costs, rents and council tax for example) while CPI does not.

Comment

This is why we still record the old measure of inflation, Retail Prices Index (RPI) as it includes housing costs i.e. it is a real measure of the total cost of living as well as many pension funds are still linked to this.  RPI fell back to 2.1% pa in October from 2.4% pa in September.  This is at or around the government’s target trend growth.

The pound is stronger on the back of a Brexit deal being more likely making imports cheaper and with employment slowing down a little meaning wages inflation has slowed down a little also.  These also contribute overall to lower inflation but have increased pressure on the Bank of England to reduce interest rates to try and head off any recession much in the same way as the European Central Bank has for Europe a well as the Federal Reserve for the United States.