This was a reduction from 2.2% in the 12 months leading to August and is the lowest point for over three years (1.5%), statistics from the Office for National Statistics (ONS) show.
Much like last month, the transport division was the root of the largest fall in prices, dropping by 2.4%, compared to an August rise of 1.2%. The price drop was the largest annual price fall for almost 10 years, when the rate was negative 2.7%.
“The fall in the annual rate was mainly the result of downward effects from airfares and from motor fuels”, the ONS noted.
At the other end of the scale, core CPI, which excludes the more variable prices of energy, food and alcohol goods, slowed to 3.2% in the year to September 2024 – lower than the 3.6% level in August.
The annual rate of CPI services fell from 5.6% in August to 4.9% in September.
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Darren Jones, chief secretary to the Treasury, said: “It will be welcome news for millions of families that inflation is below 2%. However, there is still more to do to protect working people, which is why we are focused on bringing back growth and restoring economic stability to deliver on the promise of change”.
The pace of change in the drop of inflation has caught many experts by surprise, with the rate 0.3% under the Bank of England’s 2% target.
‘Important psychological milestone for policymakers’
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “The surprise fall in inflation below the Bank of England’s target level is an important psychological milestone for both Britons and policymakers ahead of what is tipped to be a tough Budget for personal finances.
“The pace of price rises hasn’t been this low since the days of Covid lockdowns. It is important to remember that inflation doesn’t slow in a straight line. Inflation is likely to rise again with household energy increasing by 10% at the start of the month.
“However, the overall trend in inflation is certainly one of slowing and suggests that high inflation has been well and truly tamed.”
The analyst also said the figures put pressure on the Bank of England’s Monetary Policy Committee (MPC) to drop the base from 5% in the next announcement in November. This would lower borrowing rates for mortgage holders, but it would also hit interest rates for savers.
As well as borrowers and savers, Jobson also pointed out the impact this will have on households who receive government support.
Jobson said: “Millions of Britons on benefits, like Universal Credit, are poised to see a 1.7% increase in the payments they receive in the next tax year to keep pace with inflation. This is conspicuously less than the expected 4.1% rise in the state pension, under the triple lock pledge.
“This lays bare the fact that personal finances are exactly that – personal. As such, it remains important to budget effectively and have enough money squirrelled away into a rainy day fund – between three and six months’ salary worth is a good rule of thumb – to maintain financial resilience.”
Lalitha Try, economist at Resolution Foundation, said: “There was a larger-than-expected fall in inflation last month, but it will rise sharply in October driven by base effects from energy prices. This temporary fall is badly timed for millions of low- to middle-income families as [it] will result in a lower increase in their benefits next year.
“A more timely measure of benefit uprating would deliver a cash gain to a low-income family with kids of around £74 next year.
“The government needs to address the age divide in benefits [that] has left working-age support [to] fall further behind rising wages and living standards.”
This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: Inflation has shock fall to 1.7% with doors now open to lower interest rates