This remains above the Government target of 2% for CPI, but is heading in the right direction towards this target level.

These latest figures will prompt another letter from the governor of the Bank of England to the chancellor of the exchequer, explaining why inflation remains more than 1% above the target level.

The Retail Prices Index (RPI) measure of price inflation is now 4.8% for the year to July, falling from 5% in the previous month. RPI is a measure of inflation including mortgage and associated housing costs.

Inflation faced downward pressure for the year to July due to a number of factors. These included the falling price of second-hand cars, lower petrol prices and falling clothing prices.

Economists remain mixed in their views on where inflation will head next in the UK. The VAT increase, from 17.5% to 20% in January, is likely to cause a short-term spike in price inflation early next year, but other factors suggest that inflation will continue to fall.

Inflation in the UK remains above the average level of price inflation in Europe. CPI is used as an international measure of inflation, with the EU as a whole at 1.9% compared to the UK at 3.2%, both for the year to June.

We have to now wait until 14th September to learn if price inflation in the UK will continue to fall.

CPI inflation fell to 3% from 3.5% the previous month. The Retail Prices Index (RPI) measure of price inflation, which includes housing costs, remained unchanged at 3.7% in February.

Looking at the individual contributors to CPI inflation, the downward pressures came from a number of areas. Prices in the recreation and culture categories were largely unchanged between January and February, but a 1.1% increase from a year ago fell out of the time period under scrutiny.

The price of non-fiction books also helped drive down price inflation, with the cost of books rising by less than a year ago.

Although the recent inflation spike from the start of the year now appears to be falling, leading fund managers believe that both inflation and deflation are likely to be an issue for investors in the next year.

Fund managers at the recent series of regional road shows hosted by Fidelity FundsNetwork gave their opinions on inflation prospects over the next twelve months. Some expect inflation, particularly in emerging markets, whilst others think that deflation will be a problem.

This lack of consensus goes to highlight how much uncertainty remains about global economic and investment prospects over the short term.

The Consumer Price Index (CPI) measure of inflation increased to 2.9%, up from 1.9% for the year to November.

The Retail Price Index (RPI) rose to 2.4%, up from 0.3% for the year in the previous month. This is the biggest monthly rise in annual inflation since 1979. RPI includes housing costs and it now at its highest level since November 2008.

This might not be Zimbabwean or Weimar Republic levels of inflation, but such a sharp rise in inflation rates in such as short space of time will put inflation back on the agenda.

So what is driving this inflation spike?

The increase in CPI was largely driven by a number of previous factors being reversed, including the VAT cut to 15% and a sharp fall in oil prices the previous December. For this reason a short-term inflation spike was to be expected.

Looking at the individual categories which contribute to the official measures of inflation, ten of the twelve examined recorded higher prices. The biggest increases came from transport, clothing and footwear.

The publication of inflation figures next month could trigger a letter from the Governor of the Bank of England to the Chancellor, explaining why they have gone over their 3% inflation target, again.

Whilst the Bank of England Monetary Policy Committee (MPC) is tasked with controlling price inflation, this sudden rise is unlikely to set alarm bells ringing at their next interest rate decision meeting.

With the UK economy still in a fragile state, and the Bank continuing with their policy of Quantitative Easing, to increase the Bank Rate now would seem unwise and counter productive. More likely is the adoption of a ‘wait and see’ approach.

The Consumer Price Index (CPI) measure of price inflation was slightly higher than expected, with an annual rate of of 1.9%. This is up from 1.5% in October.

The Retail Prices Index (RPI) measure of price inflation, which includes mortgage and housing costs, returned positive territory, at 0.3% for the year to November compared with -0.8% the previous month.

Looking at what caused this rise in inflation, the Office for National Statistics (ONS) commented that “…the largest upward pressure affecting the change in the CPI annual rate came from transport,”. Within this category, the pressure came mainly from the cost of fuel and lubricants.

With the rate of Value Added Tax (VAT) now confirmed as returning to 17.5% at the start of 2010, we expected to see further increases to both CPI and RPI, at least in the short term.

The CPI target for the Bank of England is 3%, so a rise to 1.9% is unlikely to encourage the Monetary Policy Committee to ramp up interest rates. In fact, we still believe it is unlikely that the Bank Rate will go above 0.5% for the first half of 2010, even if CPI goes above 3% in the first few months of the year as has been widely predicted.

As a measure, both are useful. They tell us about the general direction of prices in the economy and are used by those responsible for setting interest rates to manage future price inflation.

It is important to remember that they are only average figures. Our individual measures of inflation tend to vary from these published averages.

For this reason it can be useful to look at alternative measures of inflation. In the past we have seen how price inflation for older people tends to dramatically exceed the rates for younger people, due to the types of goods and services older people typically purchase.

Our own Chief Executive uses the cost of car parking at Guildford railway station as his personal measure of price inflation.

At the other end of the age spectrum is pocket money inflation.

New figures from the Halifax show that British children received an average of £6.24 a week in pocket money this year. Average pocket money is up from £6.13 in 2008. This is an increase of 11p a week, or 1.79% – not bad in a year when the RPI measure of price inflation has been in negative territory.

There is still some way to go before pocket money levels reach the highs of 2005 when the average amount paid was £8.37 a week.

As with so many areas of personal finance, the survey also discovered some disparity between boys and girls. The boys in the survey received an average of £1 a week more than the girls.

And just like adults, the children revealed mixed attitudes towards saving. Just under 50% admitted saving at least half of their pocket money, but around a quarter said they spent every penny.