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Negative Inflation Returns As Food Costs Fall

Negative Inflation Returns As Food Costs Fall

Falling food and fuel costs have pushed the UK back into negative inflation, according to the Office for National Statistics (ONS).

The Consumer Prices Index measure, which takes in the costs of a host of consumer goods, fell to an annual rate of -0.1% in September from zero the previous month.

The ONS charted a 2.5% decline in the cost of food over the 12-month period while the cost of motor fuels fell by 14.9%.

While clothing and footwear prices rose by 2.8%, they were at a much weaker level because of greater discounting and contributed to the easing of inflation.

Negative inflation is good news for the consumer.

Falling prices helps bring down household bills while a pick-up in wage growth at the same time has boosted overall spending power.

The latest official wage growth figures are due to be published by the ONS on Wednesday.

The rate of inflation has been hovering near the zero level for much of 2015, aided by the dual effects of weak oil prices and the supermarket price war which has slashed grocery bills for 15 consecutive months.

The Chancellor, George Osborne, tweeted: "Inflation at minus 0.1% while wages rising at fastest rate in over a decade is a real boost for budgets of working families."

The figures also make it less likely that the Bank of England will contemplate raising the base rate of interest in the short term.

The Institute of Directors (IoD) called for the bank to start raising rates given the fall in oil costs would soon start to drop out of the inflation calculations.

Its economic analyst, Michael Martins, said: "We remain concerned that this temporary period of abnormally low inflation is blinding central bankers to the need to begin normalising interest rates.

"The Bank of England’s job is to set interest rates for the medium-term, where inflation is set to pick back up towards the 2% target.

"Core inflation, which strips out some of the more volatile factors putting downward pressure on the headline rate, remains a steady 1%."

The pound was trading at its weakest level against the euro since May in the wake of the inflation figures' release.