The latest UK price inflation figures show the Consumer Prices Index (CPI) measure of inflation falling to 4% from 4.4% the previous month.
The Retail Prices Index (RPI) measure of price inflation also fell in the twelve months to February 2011, from 5.5% to 5.3%.
Both measures of price inflation fell due to a record monthly fall in the price of food and non-alcoholic drinks. Prices for these items fell by 1.4% over the past two months, compared with a 0.3% rise in the same period of time last year.
These latest price inflation figures are published on the same morning as British Retail Consortium (BRC) confirmed the worst monthly fall in retail sales since records began in 1996.
Total retail sales in March were 1.9% lower than those a year ago, although the early timing of Easter in 2010 has influenced these figures to some extent.
News that price inflation has fallen back slightly and retail sales are suffering is likely to delay an interest rate rise.
Whilst the CPI measure of price inflation now stands at double the level of the 2% government target, the Bank has been arguing for months that core inflation remains at a manageable level, with stubbornly high inflation the result of temporary and imported measures which would not be controlled by higher interest rates.
It is too early to know whether the Bank has made the right calls with reference to inflation and economic recovery. Only hindsight will eventually confirm the sense in their rate and QE decisions.
What higher interest rates now would achieve is a major blow to consumer confidence and spending. With the UK economy remaining in a fragile state of recovery, it seems unlikely that the Bank would be willing to risk pushing up interest rates in the near certainty that this would have little impact on price inflation anyway.
Savers continue to face difficult decisions about managing their savings in a lower interest rate and higher price inflation environment, where keeping money in cash will result in the erosion of the real value of the money.
Photo credit: Flickr/Rob Gallop
