Eat Out To Help Out pulls inflation down to lowest level for five years

Eat Out To Help Out contributed to the lowest level of inflation in the past five years. Credit: PA

It’s the Bank of England’s job to keep inflation low and stable, prices in August were barely higher than they were in August last year.

Inflation fell to within a whisker of zero, the lowest level for five years, driven by discounted meals.

Restaurant and cafe prices in August were 2.6% lower than a year ago thanks to the government’s Eat Out to Help Out scheme and the temporary VAT cut.  

The price of clothing was lower too, despite the launch of new autumn collections.

Joel Hills explains why inflation is at its lowest level in five years

And air fares were down by more than 20% - the first fall in peak holiday season prices that’s been recorded in the last 20 years.

Now is an terrible time to be in the travel business but the Thomas Cook brand relaunched on Wednesday.

The chief executive of the new company, which is online only, says package holiday prices are at least 30% cheaper a year ago.

“I think that at the moment the pricing is very aggressive because demand isn’t there, but as soon as the demand comes back I think the pricing will normalise,” Alan French told ITV News.

“I don’t see that happening in the very short term, but I do see it happening in the medium term, really looking at Christmas and beyond.”

Low inflation will be a relief to anyone whose living standards have been by the economic impact of Covid-19.

Average pay has been falling in recent months. 

Most economists expect inflation to remain well below the Bank of England’s target of 2% in the months ahead and they don’t expect us to experience “deflation” - falling prices - something which sounds desirable but can have pretty devastating economic consequences.

We’ll find out how if the Bank of England takes the same view tomorrow when it publishes its latest assessment of the recovery and tells what, if anything, it plans to do with interest rates.

The consensus is the Monetary Policy Committee will sit on its hands.