Inflation...has it hit the bottom?

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The fall in inflation is good news, but it is unlikely to last Photo: Reuters

Few will mourn the fact that inflation has hit the lowest level since November 2009, so prices are rising at their slowest pace for three years.

Yet before you cheer, there are two caveats to take into consideration.

The Office for National Statistics identifies slowing energy prices as the biggest reason for the drop. But four of the big six energy companies have recently announced prices rises of way over inflation that will hit in the next couple of months.

Clearly that runs a big risk of pushing the rate back up. Factor in too terrible harvests that could feed through to food prices and the threat to families and businesses from inflation is far from over.

And even a rate of 2.2% is still some distance ahead of the average pay increase.

The most recent figures from the Office for National Statistics suggest the average rise in wages was 1.4% over the last year. So for many households that means while prices are rising less fast, the gap between what is coming in and what is going out is still getting wider.

As discussed earlier, this month's inflation is particularly important as it is used to set the rate of increases for pensions, benefits and business rates.

The rate is so low this month that pensions will actually rise at the higher rate of 2.5%, courtesy of the government's 'triple lock'.

But unless the Chancellor changes his mind, (which there is some pressure on him to do) benefits will rise next year at 2.2% and business rates at 2.6%.