Home Business NewsEconomic News Rock-bottom: Inflation just plummeted to a record low

Rock-bottom: Inflation just plummeted to a record low

by LLB Reporter
17th Feb 15 10:25 am

Well, it’s good news for consumers, at least.

UK inflation has just sunk to the lowest level since records began almost two decades ago (of this measure of inflation).

The government’s Office for National Statistics has announced that the Consumer Prices Index, our current national measure for inflation, grew by only 0.3% in the year to January 2015.

The main reasons for the slow growth in average consumer prices were low motor fuels prices, due to low oil prices, and low food prices.

CPI inflation was 0.5% in the year to December 2014, which was the previous record low.

Mark Carney, the governor of the Bank of England, warned last week that we could see deflation – i.e. a drop in average consumer prices – this spring.

Which might be welcome news for your weekly shopping bill, but it’s not necessarily so good for the economy at large.

But it’s not necessarily bad for the economy either.

Head of research at the Adam Smith Institute, Ben Southwood, comments: “There is good disinflation—cheaper inputs and improved productivity—and bad deflation—weak demand—and what we’re experiencing now seems to be the good kind.

“Though the headline rate is 0.3%, Mark Carney’s letter to the chancellor will undoubtedly explain that this is due to falling prices of food and fuel imports, which do not risk recession and simply make every Brit better off. Core inflation (which excludes volatile products like food and fuel) is ticking along much closer to target at 1.4%.”

What is inflation, and how is it calculated?

This handy video from the ONS explains all:

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>> Deflation could be just around the corner, warns Carney

>> UK petrol prices set to rise, say motoring groups

>> Highs & lows: Fastest economic growth since 2007… but it slowed again in Q4 2014

 

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