Inflation fall raises hopes that real term wage rise is on the cards

File photo dated 18/09/12 of money as inflation is expected to have fallen to a new four-year low in

File photo dated 18/09/12 of money as inflation is expected to have fallen to a new four-year low in February amid hopes of an end to the prolonged squeeze on real wages when the latest figures are published. PRESS ASSOCIATION Photo. Issue date: Tuesday March 25, 2014. Economists expect the Consumer Prices Index (CPI) to have dropped to 1.7% from 1.9% in January Ð the fifth monthly slowdown in a row Ð the Office for National Statistics figures are expected to show. See PA story ECONOMY Inflation. Photo credit should read: Dominic Lipinski/PA Wire - Credit: PA

The prospect of a steady rise in real term wages for the first time since the start of the economic downturn came a step closer Tuesday as official figures showed inflation fell to a four-year low of 1.7% last month.

Pay growth has been lagging behind the rise in the cost of living for six years, effectively shrinking workers' spending power.

But a fall in petrol prices and a moderation in energy price hikes helped the Consumer Prices Index (CPI) measure of inflation fall for the fifth month in a row February, according to the Office for National Statistics (ONS).

It has not been lower since October 2009, when it was 1.5%.

Official forecasts revealed by George Osborne in last week's Budget revealed that pay is finally expected to overtake inflation later this year with some experts predicting this to happen by next month.


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Ministers will be hoping an end to the squeeze spikes the guns of Labour's charge that a 'cost of living crisis' means ordinary people are yet to feel the benefits of the economic recovery.

Earnings have not increased at a higher rate than inflation since a brief spike in March and April 2010 and have not consistently been improving since 2008.

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Latest labour market figures showed annual wage growth in the three months to January was 1.4% but suggest private sector wages have already caught up with inflation, at 1.7%. Ordinary public sector workers rises lagged behind at 0.9%.

Monthly total pay rises - which are more erratic - were measured at 1.7% in December and January, suggesting they may also have already caught up.

Prime Minister David Cameron welcomed the inflation figures while the Chancellor tweeted: 'The job is far from done but another sign our economic plan's working.'

But Labour and the unions pointed out that the squeeze was still under way and said pay packets had effectively stalled at the same level they were a decade ago.

The fall in inflation from 1.9% in January also means it remains below the Bank of England's 2% target, easing any pressure on rate setters as they seek to maintain low borrowing costs to support the recovery.

A first rise from the historic low of 0.5% is not expected until next year.

Savers will also be helped by lower inflation as the value of their nest eggs has been eaten away by the rock-bottom interest rates.

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