Inflation drops to 0.9%

INFLATION dropped in October with the lower cost of clothing and university tuition fees cited as major factors.

The Consumer Prices Index (CPI) registered 0.9% last month; a 0.1% fall on the figure for September.

While the rate was slightly lower last month, it remained higher than the trend seen since late 2014.

The Office for National Statistics said the main downward contributors to the change in the rate were prices for clothing and university tuition fees, which rose by less than they did a year ago, along with falling prices for certain games and toys, overnight hotel stays and non-alcoholic beverages.

However, the downward pressures were offset by rising prices for motor fuels, and by prices for furniture and furnishings, which fell by less than they did a year ago.

Despite the fall, many analysts have said the overall trend is likely to see the rate rise over the next year.

Thomas Dawson, investment manager at Leeds-based investment management and stockbroking firm Redmayne-Bentley, said: “The ONS revealed that raw material prices have increased, as have the price of goods leaving factories, but that there is no evidence so far that this cost increase is being passed through to the prices consumers pay in the shops. 

 “The logical conclusion is that the cost increases are so far being absorbed in company profit margins, a situation which is good for the consumer but may lead to cuts in dividends for investors in due course, should the situation persist.

“If sterling continues to be weak, the most likely outcome is that retailers will seek to protect their margins and pass the price increases on at some point, subduing the spending power of consumers who are the major driving force in the economy at the moment.”