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UK inflation remains at 0% but analysts dismiss fears of deflation

Saturday, April 11th, 2015

Official figures from the Office for National Statistics (ONS) show that the UK’s inflation rate remained at a record low of 0% in March.

It is the second successive month that Consumer Prices Index (CPI) inflation has been at zero – and February’s figure was the lowest since estimates of the measure began in the late 1980s.

Furthermore, if the rate of inflation is calculated to two decimal places, the cost of living is slightly less than a year before, with prices being 0.01% lower than 12 months ago – the first annual fall of CPI inflation on record.

The ONS report suggests that clothing and footwear prices fell in the month, offset by rising prices in petrol and diesel in February and March.

The zero CPI figure leaves inflation well below the Bank of England target of 2%. However, few analysts believe that there is a serious risk of entrenched deflation of the type suffered by Japan in recent years.

Rain Newton-Smith, director of economics at the CBI business group, said: ‘Inflation should start to pick up in the second half of the year, especially as the downward pressure from lower oil prices eases.’

Meanwhile, Maike Currie of Fidelity Personal Investing believes that the figures indicate ‘disinflation’ rather than deflation. He said: ‘Food, fuel and energy are all essential items to the consumer. No-one is going to delay their purchases of any of these in anticipation of future price falls. So the effect of these factors is therefore likely to be relatively short-lived.

‘It is important for investors to distinguish between unhealthy deflation, a self-perpetuating spiral of falling prices, and disinflation, a slowdown in the rate of inflation. Don’t confuse the two. Disinflation is good news – it lines the pockets of consumers and boosts the economy’.

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