LONDON BRIEFING:The first fall in fares since privatisation in the 1990s may only be a temporary reduction, writes FIONA WALSH

CITY OF LONDON economists may have been caught on the hop by yesterday’s inflation data, but the figures brought welcome news for the British travelling public, heralding the first fall in rail fares since privatisation of the network in the 1990s.

Economists had expected the July Consumer Prices Index (CPI) to show a decline, with most predicting a figure of 1.5 per cent. But, despite the recession, the rate unexpectedly stuck at 1.8 per cent, the same as in June, which was the lowest figure in almost two years.

But it is the more broadly-based Retail Prices Index (RPI), which includes housing costs such as mortgage interest payments and council tax, which will bring lower fares for millions of rail passengers. That is because the formula for calculating the following year’s ticket prices is based on the July RPI figure, which rose unexpectedly from -1.6 per cent to -1.4 per cent. With the price rise formula at RPI - 1 per cent, fares will thus fall by 0.4 per cent from January 2010.

It may only be a small reduction but it’s welcome news for rail travellers, who were clobbered with rises of 6 per cent this year, based on last July’s RPI of 5 per cent. Not all rail passengers will benefit, however.

While season ticket prices and same-day return fares are covered, only around 40 per cent of rail revenues are regulated.

The rest, accounting for three out of every five rail journeys and including many off-peak tickets, are not covered by the RPI formula. Rail operators may try to claw back the enforced reductions by raising unregulated fares.

Just last week, rail operator First Great Western announced new restrictions on some of its off-peak services.

There are fears that services like car parking will also be targeted as rail companies attempt to recover lost revenue.

Those passengers who do see their fares fall had better enjoy it while they can, as prices will almost certainly move back up again the following year.

As for CPI and its unexpected strength last month, that is likely to be a temporary phenomenon.

Behind what economists called the “stickiness” of the July data were price rises in the recreation and culture sector; in other words, people paid more for computer games, toys, hobbies and DVDs. The impact has been exacerbated by the sharp drop in the pound, which has pushed up the price of imported consumer goods.

Higher alcohol and tobacco prices also had an impact, as did furniture prices, where there appears to have been less discounting last month. Together, these offset cheaper food and non-alcoholic drinks.

At 1.8 per cent, inflation remains below the government’s 2 per cent target but above the 1 per cent or less that the Bank of England believes it will tumble to by the end of the year. Last week Bank of England governor Mervyn King reiterated his view that inflation is likely to undershoot the 2 per cent target for some time, as he warned that recovery of the UK economy would be “slow and protracted.”

Having regained their composure, economists were swift to renew forecasts of falling inflation.

This time they’ll probably be right, particularly as last year’s hefty energy price rises are working their way out of the comparisons. Some economists are warning deflation is a possibility. The rest of us can only hope they’ll be wrong.

Writer to document life at Heathrow

BRITISH Airways and Heathrow operator BAA are either very brave or very foolish. Less than 18 months after the disastrous opening of Heathrow’s £4.3 billion Terminal 5, they have granted philosopher and author Alain de Botton writer-in- residence status at the airport.

He will have unprecedented access to passengers and employees at Terminal 5, from check-in staff and baggage handlers to BA chief executive Willie Walsh. The aim is to gather material for a book – A Week at the Airport: A Heathrow Diary– which will hit the shops in late September.

Walsh, who took personal responsibility for the T5 debacle, must be hoping the conveyors run smoothly this week. The philosopher has been assured full creative control over the book and, as he told reporters, “If I want to say the airport is a dump, which should not exist, I can.”

Fiona Walsh writes for the Guardiannewspaper in London