Supermarket price war drives CPI inflation to lowest-ever level of 0.3%

Figures from the Office for National Statistics (ONS) showed that CPI inflation, which measures the speed at which the price of goods and services bought by households rise or fall, dropped from 0.5% in December.

Analysts say January’s figure, which is the lowest rate of CPI inflation since records began back in 1988, is “excellent news for the consumer’s purchasing power”.

The Retail Prices Index, which measures the change in the cost of a representative sample of retail goods and services, also fell to 1.1% in January from 1.6% the previous month.

The ONS said falling prices in motor fuels and food were “the main contributors to the slowdown in the rate of inflation”, while a slowdown in the rate of price inflation for alcohol and some recreational goods also helped.

Competition among supermarket giants Tesco, Asda, Sainsbury’s and Morrisons had food prices fall 2.8% in the year to January 2015. The cost of vegetables had the largest drop falling 7.9% since January 2014. The price of milk, cheese and eggs fell 3.5% in the same period, while bread and cereals became about 2.3% cheaper.

As well as falling prices of petrol and staple grocery products, the ONS said games, toys and hobbies also became cheaper in January.

But the ONS added that prices of other items such as clothing and furniture are rising.

IHS Global Insight chief UK and European economist Howard Archer said: “With inflation likely to fall further and earnings growth now finally trending upwards, consumers should see appreciable improvement in their purchasing power as 2015 progresses.”

But Archer added that core inflation, which strips out food, energy, alcohol and tobacco prices, rose to 1.4% in January from 1.3% in December.