(1888PressRelease)
November 26, 2008 - London, The official measure of the cost of living- consumer price inflation (CPI) fell by 0.2% in October, over the previous month, according to data from the Office for National Statistics. Annual CPI dropped by the largest amount in eleven years, official figures revealed.
The drop in inflation was brought on by a sharp fall in the price of commodities- food grain and oil. Food prices have fallen sharply, with wheat and corn prices declining by more than 50 percent from the record highs scaled earlier in the year. Oil prices have fallen by more than 60 percent from a high of over $147 for a barrel, reached in July 2008.
The wider retail prices index (RPI) measure- used in wage negotiations dropped to 4.2 percent in October from 5 percent in the previous month.
Current inflation figures are likely to cool further in the next two years, to just below 1 percent - half the government’s target, giving rise to fears of negative inflation. While addressing the House of Commons, Prime minister, Gordon Brown said yesterday: "Next year, the problem is deflation and the problem of inflation close to zero."
With Bank of England (BoE) predicting a contraction of 2% in 2009, the government is likely to slash borrowing rates further to promote growth. As the economy slows, bank governor, Mervyn King said last week, "We are certainly prepared to cut... (the BoE's key lending) rate again if it is necessary." In the beginning of the month, the BoE slashed borrowing costs by a larger-than-expected 1.5 percent, leaving interest rates at 3 percent- the lowest since 1955.
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