Inflation falls to 2.8 per cent as oil prices slide

Plummeting petrol prices and intense supermarket competition left the rate standing at 2.8 per cent in May, down from three per cent the previous month and the lowest since November 2009.

Although the cost of living is still rising faster than wages ? leaving consumers worse off ? the gap is finally starting to narrow.

Ranvir Singh, of market analysts RANsquawk, said: ?The growth-squeezing vice of inflation is slowly easing off. After its dramatic spike in March, the drop in petrol prices through May took much of the sting out of this latest data.?

Prices actually fell by 0.1 per cent between April and May, the first time this has happened since the current Consumer Prices Index was launched in 1996.

The drop was largely due to a fall in the cost of filling up the car, with petrol prices down 4.5p a litre on average to stand at ?1.37 a litre. Average diesel prices also decreased, dropping 4.4p to 143.3p between April and May.

The cost of many grocery staples, including grapes, bananas, milk, cheese and eggs, either fell or remained almost unchanged during the month.

Overall food prices rose 3.1 per cent over the year, the lowest rate since June 2010, according to the figures from the Office for National Statistics.

City economists hailed a rare ?silver lining? of good news at a time of raging turmoil in the eurozone. Jeremy Cook, of currency broker World First, said the data ?will trigger a sigh of relief from Threadneedle Street? as it gives the Bank of England further leeway for measures such as quantitative easing or even a further cut in interest rates to 0.25 per cent.

The rate of inflation has almost halved since it peaked at 5.2 per cent in September. The sharp slowdown in the world economy and recession in parts of Europe has dragged oil prices down well below the $100-a-barrel mark.

The CPI is expected to slowly fall further during the year towards the Government?s target rate of two per cent.

Higher than expected inflation ? along with the eurozone crisis ? has been blamed by the Bank and the Government for the feeble recovery from the last downturn and the dip back into recession.

The falling rate of inflation was also welcomed by savers as more accounts are now offering returns that beat the cost of living.

For basic rate taxpayers there are 101 fixed-rate bonds and 30 fixed-rate cash ISAs that will beat inflation, according to moneysupermarket.com.

Its head of banking, Kevin Mountford, said: ?The fall in inflation should also provide encouragement for people to start saving again.?

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