Cost of living falls further

The Retail Prices Index fell 1.2% in April, according to the Office for National Statistics (ONS).

The RPI includes housing costs such as rent and mortgage payments. The low base rate of interest set by the Bank of England has driven mortgage payments down, which is partly why the RPI has fallen. However, the fall was larger than expected – down from -0.4% in March – and is the steepest fall since records began in 1948.

The Bank of England’s Consumer Price Index (CPI) also measures UK prices, but does not include housing costs.

For consumers, the fall in prices in mixed news. While a falling RPI generally signals a reduction in mortgage costs and the price of the items in your shopping trolley, many private sector firms use the index as a benchmark for wage increases, so many workers could see little or no change to their salary this year.

It is also mixed news for pensioners. The state pension, which is usually linked to the RPI, has been protected by a government pledge to increase it by at least 2.5% in 2010, but for the 180,000 pensioners who chose ‘index-linked’ private pension annuities, deflation could spell a fall in their monthly payments, although many are protected against this by a clause in their policy.

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