Britain gets deflation


An increasing number of countries are recording negative year-on-year inflation numbers. I reported first on Spain, then on Switzerland.  Add the U.K. to the list as well.

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Deflation returned to Britain for the first time in nearly five decades last month as prices measured by the retail price index (RPI) were lower than the same time a year ago.

The Office for National Statistics said the RPI was 0.4% lower in March than it had been in March 2008. That was the first negative reading since March 1960, when Harold Macmillan was prime minister and John F Kennedy was running for the US presidency.

On the government’s preferred consumer price index measure, which excludes housing and mortgage costs, inflation was still comfortably in positive territory, at 2.9%. CPI is much higher here than the 0.6% figure for the eurozone and economists say the falling pound has pushed up some import prices, delaying the drop in the CPI.

A short period of falling prices should help consumers because it will make their increasingly squeezed income go further. However, if prices continue falling for a long period and deflation becomes entrenched, that can have an adverse effect on the economy as consumers continually hold off making purchases in the expectation of lower prices. This in turn forces firms to cut wages and sets off a damaging spiral.

Deflation returns to Britain for first time since 1960 – Guardian

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