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Inflation rate drops to 0%: what the new record means for consumers What is deflation - and what does it mean for you?
(about 2 months later)
The figures released on Tuesday show that the price of a basket of goods and services that cost £100 in February 2014 would still have cost £100 in February 2015. This means inflation, or the change in the price of goods over time, hit 0 per cent for the first time since records began in 1989. Inflation dipped below zero for the first time since 1960. The cost of goods fell 0.1% in March after sitting flat at zero in February - which means food, alcohol and clothing was cheaper in March than it was a year ago.
David Cameron seems to think so: Over the last year, food prices have fallen by 3.0% and prices of motor fuels fell by 12.3%, according to the ONS.
PM: Inflation is running at 0% - the lowest on record. It's good news for family budgets and a sign our #LongTermEconomicPlan is working. George Osborne has been telling journalists that:
Osborne: "good news for family budgets with prices lower than a year ago. [as BoE Gov said] should not mistake this for damaging deflation"
Though not all would agree:Though not all would agree:
if zero inflation something to celebrate as @David_Cameron & @george_osborne are today why did he set MPC's target at 2% think public stupid If deflation is so great why did Osborne set the mpc a target of 2% Japan never had deflation much above 1% it became stuck
Economists have welcomed the dip, because it gives households’ shopping budget a boost that should encourage spending and help the UK economy grow. This is especially good because wage growth has slowed to 1.8 per cent.Economists have welcomed the dip, because it gives households’ shopping budget a boost that should encourage spending and help the UK economy grow. This is especially good because wage growth has slowed to 1.8 per cent.
The price of motor fuel fell a staggering 16.6 per cent in February while food prices were down 3.4 per cent in February, caused the inflation rate to fall. Data processing equipment, books, games and toys are also cheaper. But not everything is cheaper: the price of clothing and rent is higher. The price of less volatile goods used to calculate the core inflation rate like tobacco and energy grew by 1.2 per cent in February – much closer to the government target of 2 per cent. An early Easter - in March rather than April - is thought the be reason transport suffered a dip. The airlines didn't put their prices up in time to capitalise on Easter holidays.
The CPI figures: it is not just energy, IMHO. Everything appears to be <2% pic.twitter.com/rwLZtIGYnQ Worth remembering if it wasn't for the timing of Easter this year, CPI might never have turned negative.
There are hints that inflation will get lower still, rivalling 1960, when ONS projections say inflation was at -0.6 per cent. The global price of oil – which is behind lower fuel and food costs – looks like it is going to continue to dwindle. A stronger pound, the result of the European Central Bank’s quantitative easing policy, will make UK imports cheaper. Yes - but economists say this isn't 1930s deflation or Japan deflation, where prices will keep falling.
Yes, but if consumers and businesses expect inflation to stay low, they might put off spending and investment . What’s more the Bank of England might cut interest rates – already on hold at 0.5 per cent since 2009 – further to get inflation up to the target 2 per cent. This would be bad news for savers. Many economists prefer to call it negative inflation, because prices are expected to rebound. We're already seeing the price of fuel going up. And if you include housing costs, the rate of inflation is actually 0.9%.
If RPI inflation could be as similarly low (it should only be slightly higher than CPI) so nice low interest rate on excessive student loan If consumers and businesses expect inflation to stay low, they might put off spending and investment.
The consensus is that we are going through a period of ‘good inflation’ as a result of falling oil prices, rather than domestic demand. Mark Carney, governor of the Bank of England, has made clear that the new flat 0% doesn’t look like the start of persistent deflation of the sort which which, during the Great Depression, resulted in skyrocketing unemployment. What’s more, the Bank of England might cut interest rates – already on hold at 0.5 per cent since 2009 – further to get inflation up to the target 2 per cent. This would be bad news for savers.
The consensus is that we are going through a period of ‘good inflation’ as a result of falling oil prices, rather than domestic demand.
Mark Carney, governor of the Bank of England, said a dip into deflation was expected, but that we should be moving towards 2 per cent inflation towards the end of the year. It doesn’t look like this is the start of persistent deflation of the sort which which, during the Great Depression, resulted in skyrocketing unemployment.