Inflation was zero in March compared to a year ago. Higher fuel costs were offset by a fall in gas and clothing prices. Inflation is measured by the Consumer Prices Index (CPI) and this is the lowest figure since records began in 1989. The Office of National Statistics revealed the figures represent the joint weakest price growth since 1960.
Economists are predicting a “50-50 chance of deflation” in the coming months. Core inflation, which strips out energy and food fluctuations stood at 1pc in March which is a nine year low.
Good news for the UK
Many experts feel that low inflation is broadly good news for the UK as it puts more money in people’s pockets and helps to boost consumption. However, some analysts believe that low inflation will cause the Bank of England to extend low interest rates.
Low inflation becoming entrenched is a danger to the economy, and the Bank of England has other measures it can take to make sure the country avoids this.
Sterling against the Euro
Alan Clarke, economist at Scotiabank, said that inflation was poised to turn negative next month. “In broad terms, what you tend to get when headline inflation has fallen sharply in the past, the core measure follows two to three months later. The worst drag from petrol prices is past us, but other elements that are affected include airfares, take a while to feed through. The strength of sterling against the euro will also push down on inflation over the coming months.
“We will hit negative next month on headline inflation – we are just delaying the inevitable. – and we should finally turn negative – albeit mildly and temporarily.”
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