May

UK Inflation declines by 0.1%

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The UK Consumer Prices Index (CPI) has shown a negative figure in inflation for the first time on record.

The Office for National Statistics has said that this is the first time CPI has turned negative since 1960 based on comparable historic estimates.

It is thought that the biggest contribution to this fall has come from a drop in ticket fares for air and sea travel.

Chancellor George Osbourne explains:

"We should not mistake this for damaging deflation," Mr Osborne said in a statement, adding that the lower cost of living driven by last year's fall in oil prices would be a welcome relief for family budgets in an environment in which average wages were finally beginning to rise.

"Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise"

To put this into simple terms, this basically means that the cost of spending money has decreased ever so slightly if you compare this April to last April. For example, your grocery shop costing £100 in April 2014 would have only cost you £99.90 in April 2015.

This isn't a massive drop but the expectation is that while it is seen to be only a temporary fall due to the drop in oil prices. The dip however could be seen in a positive light for the economy because it could lead to increase consumer spending.

Andrew Sentance, senior economic adviser at PricewaterhouseCoopers explains:

"Once the impact of the big drop in oil prices drops out of the annual inflation rate, it will move back up to 1-2% over the next year or so. With wage inflation picking up we may soon be considering the prospect of above target inflation," he said.

"In the meantime, flat or slightly falling consumer prices are good for growth, boosting real consumer spending power. So a temporary period of slightly negative inflation can be good for the UK economy."

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Posted by
Lee Noble
19 May 2015
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