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24/03/2009
Inflation At 49 Year Low
There has been a marked fall in the economic instrument used to measure UK inflation.
The Retail Price Index (RPI) looks at the fall or rise in the price of goods such as food, and property values.
Last month the UK index fell from 0.1% to zero, just falling short of deflation. This was the lowest reading in over 49 years.
However, another measure, which excludes house prices, gave a very different view of the market.
The Consumer Price Index (CPI) focuses on a much broader spectrum of consumer goods, and gives a better indication of the fluctuation in prices on the high street and at the supermarket.
Last month this index grew by 0.2%, giving a CPI reading of 3.2% for February.
A senior figure at Ernst & Young Item Club, which reports on Treasury findings, said he was surprised by the CPI rise.
Economic adviser Hetal Mehta said: "It is surprising to see CPI inflation increasing when a sharp fall was widely expected."
According to Rob Pike from the Office for National Statistics, the increased cost of importing vegetables, toys and fuel have effected the CPI measure.
Mr Pike suggested many shops were no longer offering the VAT cut announced last year, and had reverted to earlier pricing.
"We have seen many prices return to the previous selling price in November, or even gone beyond that. And that is quite widespread," he said.
The UK's central bank, the Bank of England, factors in the CPI when setting interest rates.
When the index titters over the government's target of 2%, the head of the bank must provide an explanation to the Chancellor of the Exchequer.
Mervyn King, the bank's governor, has told the Chancellor Alistair Darling he expects the trend of falling CPI to continue, as it has done since September last year.
"It is likely over the next year CPI inflation will move below target, although the profile of inflation could be volatile," said Mr King in a letter to the Treasury.
The broader RPI is used by the government to adjust pension levels and state benefits.
Today's zero reading is said to be the lowed the index can go before the economy hits deflation.
"The big picture remains that deflation is on its way," said Vicky Redwood of Capital Economics.
Workers across the country can expect further pay freezes or even pay cuts later this year, according to economic experts.
(PR/JM)
The Retail Price Index (RPI) looks at the fall or rise in the price of goods such as food, and property values.
Last month the UK index fell from 0.1% to zero, just falling short of deflation. This was the lowest reading in over 49 years.
However, another measure, which excludes house prices, gave a very different view of the market.
The Consumer Price Index (CPI) focuses on a much broader spectrum of consumer goods, and gives a better indication of the fluctuation in prices on the high street and at the supermarket.
Last month this index grew by 0.2%, giving a CPI reading of 3.2% for February.
A senior figure at Ernst & Young Item Club, which reports on Treasury findings, said he was surprised by the CPI rise.
Economic adviser Hetal Mehta said: "It is surprising to see CPI inflation increasing when a sharp fall was widely expected."
According to Rob Pike from the Office for National Statistics, the increased cost of importing vegetables, toys and fuel have effected the CPI measure.
Mr Pike suggested many shops were no longer offering the VAT cut announced last year, and had reverted to earlier pricing.
"We have seen many prices return to the previous selling price in November, or even gone beyond that. And that is quite widespread," he said.
The UK's central bank, the Bank of England, factors in the CPI when setting interest rates.
When the index titters over the government's target of 2%, the head of the bank must provide an explanation to the Chancellor of the Exchequer.
Mervyn King, the bank's governor, has told the Chancellor Alistair Darling he expects the trend of falling CPI to continue, as it has done since September last year.
"It is likely over the next year CPI inflation will move below target, although the profile of inflation could be volatile," said Mr King in a letter to the Treasury.
The broader RPI is used by the government to adjust pension levels and state benefits.
Today's zero reading is said to be the lowed the index can go before the economy hits deflation.
"The big picture remains that deflation is on its way," said Vicky Redwood of Capital Economics.
Workers across the country can expect further pay freezes or even pay cuts later this year, according to economic experts.
(PR/JM)
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No change in rate of inflation
Consumer Price Index (CPI) inflation has remained steady at 1.6% last month, according to the latest figures from the Office of National Statistics (ONS). The ONS said that transport costs and petrol and diesel prices had fallen in January, which contrasted with small rises recorded last year.
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