This, says Martin Beck at the EY Item Club, "will provide a substantial boost to activity". Charlotte Morrish at Schroders agrees, saying the fall "should be positive for domestic demand". This is simply because if people are spending less on food and petrol they have more cash with which to buy other things.
But the benefit might not last long. Some members of the Bank of England's Monetary Policy Committee fear that recent low inflation will reduce inflation expectations and hence wage growth. These fears have been heightened by official figures showing that wage inflation fell sharply in January, and by a survey this week by Barclays which showed that the public's expectations for inflation in the next 12 months have fallen to their lowest levels since their survey began in 1986.
Low nominal wage inflation poses the danger that real wages will again be squeezed when consumer prices rise again. This is especially the case because labour productivity - the main cause of real wage growth in the longer term - is still lower than it was in 2008 and is showing little sign of rising.
Some economists suspect that CPI inflation might yet turn negative next month, as lower utility bills show up in the figures. But the majority think this will be a short-term phenomenon and expect it to rise later this year. Philip Shaw at Investec forecasts it will return to 1.4 per cent by the end of this year. This could squeeze real wages and hence consumer spending. Chris Williamson at Markit warns: "Consumer spending could wane as soon as inflation starts to pick up again unless we see stronger wage growth."
This matters for savers because the fear of a squeeze on real wages and spending could cause the Bank of England to further postpone interest rate rises. For this reason, economists agree that it will be wage inflation, rather than CPI inflation, that will most strongly influence the Bank's interest rate decisions.
