This marks the first time in four years that the inflation rate has fallen below the Bank of England's 2% target.
Inflation as measured by the Retail Prices Index rose to 2.8% from 2.7% in December, the Office for National Statistics said.
The lower inflation was in large part due to a fall in the prices of recreational goods and services, furniture and household goods, and alcohol and tobacco.
Steve Wilkie, managing director of the retirement specialists Responsible Life, comments:
"After what seemed an age, the storm is past. And as the soggiest parts of Britain start to dry out, the inflationary clouds are parting too. For years, people's standard of living has been steadily dampened by fast rising prices. Pensioners and those on a fixed income have been particularly hard hit. So for the spending power-sapping menace of inflation to have been brought to heel is marvellous news for them.
"But it's not all good news. Now CPI has dipped below the Bank of England's 2% target for the first time in four years, the Governor will be in no hurry to raise interest rates to more normal levels. His latest forward guidance hints that a rate rise is still some way off. So for those who rely on savings for income, today's fall in inflation is a meaningless victory. With interest rates still at rock bottom, their cash savings are going nowhere in real terms."
Vanessa Owen, LV= Head of Annuities and Equity Release said:
"The fall in the rate of inflation is great news for those worried about the rising cost of living. This is especially good news for those in retirement who are often hit hardest by rising inflation. This section of society spend a significantly higher proportion of their disposable income on bills, such as heating, and less on luxury items, the ‘Silver Inflation’ rate is typically higher than the headline inflation figure.
"Our research found that almost half of over 65’s are concerned about the impact inflation will have on their retirement income. However, with people spending longer in retirement, the risk of inflation eroding someone’s purchasing power is an issue that must be considered when deciding how to structure their income.
"The majority of annuities sold today are still purchased on a level basis, but there are retirement solutions available that provide an element of inflation-proofing. Indeed, if someone qualifies for an enhanced annuity, the higher income will help to offset the impact of inflation and their life expectancy reduces the time for inflation to take effect. However, those approaching retirement in good health should look at alternatives to purchasing a level payment annuity such as an investment-linked annuity, which offer retirees the potential for future growth.
"The retirement product, or combination of products that best suits a retiree’s need will depend on their individual circumstances. We believe that it is important that retirees seek advice to ensure that they maximise their pension fund."
