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Inflation or should we say deflation
It may not be entirely unexpected, but it is certainly unprecedented in the last few decades. After two months at zero, CPI inflation went negative April 2015, with the index falling 0.1%. Based on comparable historic estimates, the last time the UK saw consumer price deflation was in the year to March 1960, when prices fell by an estimated 0.6%.
According to ONS, the largest downward contributions came from transport with the majority of this coming from air and sea fares. Price changes for these fares between March and April vary notably year on year, with the timing of Easter a factor.
There were also smaller downward contributions from price movements in: housing and household services; clothing and footwear; furniture, household equipment and routine maintenance; and alcoholic beverages and tobacco.
So… Should we worry?
The answer is probably no. Deflation is not generally viewed to be a good thing, for example if consumers’ believe prices will keep falling, then they might delay purchases and this can stall economic growth. However, there’s no sign as yet that consumers think prices will continue to fall (the Bank of England’s survey showed that median expectations of the rate of inflation over the coming year were 1.9%). There’s also no sign that falling prices will continue for any length of time.
In fact, the most likely scenario is that inflation will drift up in the latter half of this year, a result of the base effects of last year’s oil price slump. However, we expect core inflationary pressures to remain well anchored, ensuring that inflation remains below the 2% target for the rest of 2015.
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