Falling fuel prices help see a return to deflation

Inflation has fallen back into negative territory, with prices falling during September.

The Office for National Statistics says that the consumer prices index (CPI) – which is based on the cost of a range of products and services, but does not include housing costs – fell to -0.1% during September.

It means the cost of living was 0.1% lower than during September last year.

The ONS said a fall in the cost of motor fuel was partly behind the figure, while clothing prices have risen more slowly than usual.

A long period of deflation is considered to be bad news – not least because consumers are tempted to put off spending money while they wait for prices to fall further – but most observers think inflation will starting to rise again in the new year.

“Inflation has remained at or around 0% for most of this year, and we expect that this will continue over the next few months,” says David Kern, chief economist at the British Chambers of Commerce.

“Our forecast is that annual CPI inflation will start to creep upwards early in 2016, but will remain below the [Bank of England’s] 2% target well into 2017.”

Low inflation boosts disposable income and supports living standards in the short term, and is also beneficial to savers, who have had a rough time in recent years. As inflation falls, so the interest they earn on their savings becomes worth relatively more.

However, Charlotte Nelson, of Moneyfacts.co.uk, says: “This is no excuse for savers to rest on their laurels as many of the main brands are using savers’ reluctance to switch to their advantage, allowing poor rates to remain.”