A drop of nearly six per cent in the cost of petrol between September and October offset the impact of the new #3,000 university tuition fees to hold year on year inflation steady at 2.4 per cent.
Although this was still well above the Bank of England's two per cent target, City markets took it as an indication that the Bank may at least wait wait some months before raising interest rates again.
The pound fell to its lowest level for a month against the euro.
The retail prices index, still used as a benchmark by most pay bargainers although no longer linked to the Bank's target, rose by 3.7 per cent on a 12-month basis, up from 3.6 per cent in September – and three per cent as recently. It has not been higher since May, 1998.
The main difference between the RPI and the CPI now used by the Bank is that the RPI includes cost of home ownership and is reflecting the latest surge in house prices, even though this has been largely confined to London.
Apart from the effect of cheaper petrol, inflation was held down last month by a flurry of special offers for furniture and furnishings, to some extent unwinding unusually sharp increases in September.
Prices of big-ticket household durables also fell more than in October last year.
Against that food prices continued their recent rise – particularly for fresh vegetables and meat – while last October they were falling.
"This latest data throws considerable doubt on the need for the Bank of England to raise rates any more," said Rob Carnell, economist at ING Financial Markets.
"The impact of university fees was significantly less than expected," said Amit Kara, economist at UBS.
But Howard Archer at Global Insight warned that the rise in the RPI could be reflected in steep pay claims in the winter's wage round.
"The rise in retail price inflation to an eight-year high of 3.7 per cent in October (up from 2.2 per cent at the end of 2005) maintains the risk that wage settlements could move significantly higher in the 2007 pay rounds," he said.
"It is far too soon for the Bank of England to relax in the war against inflation.
"On balance, the October inflation data reinforce our belief that interest rates are set to stay at five per cent for some considerable time, but we would certainly not yet rule out another quarter-point hike around next February."
The Bank is due to spell out its latest thinking in its quarterly Inflation Report this morning.n Confidence in the employment market has bounced back sharply in recent weeks as workers believe their jobs have become more secure, a report claimed yesterday.
A survey of 2,000 adults by Lloyds TSB showed more optimism on the jobs front, although more than a third still described employment prospects as worse than a year ago. Almost a quarter said they felt their own job was more secure, according to the study, released ahead of official unemployment figures later today.
Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: "After four quarters of faster economic growth consumers are finally starting to regain their confidence in the job market.
"The improved sentiment will help to support economic growth at an above-trend pace in 2007, and bodes well for the housing market as people are more likely to move."