Inflation has fallen back for a second successive month, to its lowest level in nearly three years. This news will signal some degree of easing of the pressures on UK workers' pay packets (even if only to a limited extent).
But the good news on inflation could be short-lived.
Some commentators warn that it could be 'dangerously complacent' to expect inflation to continue to fall.
Inflation falls to lowest levels since 2009
Latest inflation data from the Office for National Statistics (ONS) reveal the following:
- Retail prices index (RPI) inflation rose by 2.6 over the 12 months to September 2012, a fall of 0.3 percentage points on the rate recorded one month previously (2.9%). This is its lowest level since December 2009. RPI is also significantly below the 30-year high of 5.2% recorded this time last year.
- ONS comments that "by far the largest downward pressure to the change in the RPI came as a result of September 2011's utility bill rises falling out of the index calculation. The majority of the upward pressure to the index came from an increase in the price of motor fuels."
- Consumer prices index (CPI) inflation fell to its lowest level since November 2009, but remains above the 2% target rate, running at 2.2% in September 2012 (down from 2.5% in August).
Any fall in inflation is welcome news at a time when workers pay packets have been squeezed by rising prices for a sustained period.
British Chambers of Commerce (BCC) Chief Economist David Kern comments:
Falling inflation benefits the UK economy as it reduces the squeeze on businesses and consumers and underpins domestic demand at a time of fiscal austerity and weak growth in the global economy....but inflation remains above value of pay awards
Despite this fall, RPI remains higher (by a factor of 0.2 percentage points) than the headline pay award for the three months to 31 August 2012 as measured by XpertHR, which stands at 2.4% (XpertHR subscription required).
Writing off inflation threat could be 'dangerously complacent'
So where might inflation go from here?
Many commentators are concerned that inflation is about to start rising again.
Capital Economics Chief Economist Vicky Redwood warns that the latest fall in inflation is "likely to be the last for a while."
Indeed another analyst - quoted in XpertHR's October 2012 economic commentary article - warns that it could be "dangerously complacent" to write off the threat of rising inflation in light of the latest ONS data.
See also:
- XpertHR economic commentary October 2012: A lack of oomph
XpertHR's economic commentary for October 2012 covers the following topics: the national minimum wage uprating for 2012/2013; the Government's new strategy to reboot the UK economy and what might be expected from the Chancellor's Autumn Statement 2012. We also consider trends in trade union activity in 2012 and beyond, and report the latest readings on key economic indicators of relevance to HR practitioners and pay specialists, including inflation, unemployment and pay awards.
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