Inflation drops as stores vie to attract customers

A supermarket price war helped reduce inflation slightly last month amid signs the rise in the cost of living appears to have passed its peak.

The Consumer Price Index (CPI) rate of inflation fell to 5 per cent in October, the Office for National Statistics (ONS) said, slightly down on the three-year high of 5.2 per cent in September.

“Significant and widespread discounting” by supermarkets, as well as a strong harvest for some produce, saw the biggest fall in food prices for a September to October period since 1996, the ONS said.

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But another utility tariff increase from big six supplier npower continued to pile pressure on consumers struggling to cope with average wage rises far less than the rate of inflation.

Despite the slight drop, Bank of England Governor Sir Mervyn King was required to write a letter of explanation to the Chancellor as inflation still remains more than double the Government’s 2 per cent target.

The Bank is expected to slash its forecasts for growth and inflation in its quarterly inflation report today as a raft of key indicators all point towards the economy heading into reverse.

The weaker outlook is likely to push down the inflation projection – but this will be slightly offset by the impact of the £75bn round of quantitative leasing last month.

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Tesco triggered a price war in October with a £500m campaign that cut the cost of 3,000 everyday products.

The moves saw vegetable prices fall 2.4 per cent, fruit ease 1.6 per cent, milk, cheese and eggs drop 1.2 per cent and meat edge down 0.7 per cent, the ONS said.

Elsewhere, a 6 per cent fall in air fares and a slight 0.4 per cent dip in petrol pump prices brought the overall CPI rate down. The average price of petrol was £1.34 in October, the lowest since July.

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