16/10/2012 06:14 BST | Updated 16/10/2012 06:16 BST

Inflation Falls To Lowest Level For Three Years, Says Office For National Statistics

Inflation fell to its lowest level for nearly three years last month, but energy price hikes are expected to put household finances under pressure once more.

The Office for National Statistics (ONS) said the Consumer Prices Index (CPI) fell to 2.2% in September, down from 2.5% in August and the lowest level since November 2009.

While CPI is now less than half the 5.2% seen a year earlier, gas and electricity rises are expected to push it higher after four of the "big six" energy firms announced price rises.

The ONS said CPI fell last month when hefty energy bill hikes seen in 2011 dropped out of the index.

But with SSE, npower, British Gas and Scottish Power having announced moves to increase tariffs, CPI is expected to start rising once more after a year of falls.

The ONS said the recent spate of energy bill increases would likely lead to similar increases in inflation as seen last year, when utility price increases added 0.45% to CPI.

Rising fuel prices also put upward pressure on CPI last month, when petrol rose by 3.9p a litre between August and September compared with a fall of 0.3p a year ago, according to the ONS.

Experts fear rising food prices will also push inflation back up.

Today's figures showed the Retail Prices Index (RPI), which includes housing costs, also eased back last month, to 2.6% from 2.9% in August.

Last month's inflation fall will come as bad news for basic state pensioners and those on benefits, as the Government uses September's CPI figure to calculate their payment increases the following April.

Jason Conibear, trading director at forex specialists, Cambridge Mercantile, warned that the current lower level of inflation isn't likely to last.

He said: “Inflation has fallen even closer to target but few expect it to stay at this level for long.

“It’s like Mervyn King, the Bank of England Governor, has bungee-jumped into a gorge.

“If he’s lucky he’ll dip his hands in the water at the bottom but he’ll soon be catapulted back up by rising utility bills, petrol and food prices.

“Sterling traders will have taken this three-year low onboard but will be looking forward to this week’s Bank of England minutes before taking any major positions.

“The Pound could come under marginal pressure over the course of the week, as this lower inflation figure and a potentially dovish set of minutes give the Bank more room to print, but the markets will have priced in the longer term inflation outlook, namely up.

“As ever in currency markets, the longer we trade sideways the more aggressive the break when it comes.”

Jeremy Cook, chief economist at World First, the foreign exchange company, agreed with Conibear's analysis.

He said: "This slip is mainly as a result of the 'falling-out' of last year’s energy price increases from utility companies.

"However, Friday’s news of further gas price increases ensure that any comfort from this number will be short-lived especially on wage price fronts.

“Food price inflation will also become a worry through the end of 2012 following a particularly wet summer here in the UK and a pernicious drought in the agricultural Midwest of the US."