No time for celebrations

The news that the Consumer Price Index rate fell to five per cent in October will be cautiously welcomed by households across the country who have been battling the perfect storm of rising living costs and stagnant wages.

It was a problem that was threatening to derail the Government’s economic plans as many consumers saw what little surplus they had squeezed, and many retailers have suffered significant losses as spending was reined-in.

Business leaders have seized on this glimmer of hope as a sign inflation will sharply decline in 2012.

But such apparent good news should be treated with the utmost caution – the economy may be slowing down on its perilous journey, but it is yet to turn the corner and head to safety.

Firstly, the drop appears to have been sparked by the annual pre-Christmas aggressive supermarket price war. Tesco have launched a £500m price drop campaign, and their competitors responded by offering similar discounts on foodstuffs and fuel. The dramatic cuts sent grocery prices tumbling, but such expenditure to win Christmas customers is far beyond smaller retailers.

Thousands of SMEs will be unable to afford such tempting offers, and continue to face a severe difficulties. During tough times, consumers will struggle to justify supporting their local high street when the retail giants can offer two for the price of one.

This will be particularly damaging to rural areas where SME’s are the lifeblood of the economy. Furthermore, for many in the countryside the discounts offered in the supermarket are all but eroded by the cost of fuel to travel to one.

Secondly, the economy is so fragile any fluctuations will have a significant impact and energy bills remain a serious concern, as they continue to apply the most significant upward pressure on inflation.

Britain endures some of the highest energy prices in Europe – should the Government fail to act and bring them under control, such costs will act as an anchor on household budgets, hauling back those families trying to help push the economy forward and leaving thousands more pensioners in fuel poverty.