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UK inflation turns negative for first time since 1960

LONDON: British inflation sank into negative territory last month for the first time in more than half a century, official data showed Tuesday, sparking fears of deflation or prolonged falling prices.

The rate hit minus 0.1 percent in April, the Office for National Statistics (ONS) said in a statement, risking a period of damaging deflation for Britain’s economy.

That was the lowest rate on record — since the data series began in 1996 — and comes after two previous months of zero inflation.

The ONS added that it was the first time that inflation has turned negative since 1960, citing comparable historic estimates. An experimental data series created by the ONS indicated that CPI was last negative in March 1960, when it stood at minus 0.6 percent.

The Consumer Prices Index (CPI) fell by 0.1 percent in the year to April compared with no change in the 12 months to March, the ONS added.

“The title of the ONS note ‘UK enters deflation’… suggests the UK statistics office put today’s numbers in this category,” said Investec economist Philip Shaw.

“However, we prefer to classify this as ‘negative inflation’, with deflation more strictly defined as a period of falling prices that are both sustained and general.”

Prices were pushed into negative territory on the back of falling transport services — notably air and sea fares — and the earlier timing of Easter.

“Seasonal factors were at work in this month’s figures,” said economist Ben Brettell at stockbroker Hargreaves Lansdown.

Inflation has been dragged lower in recent months by slumping world oil prices and supermarket price wars in Britain.

However, Tuesday’s data also showed a sharp drop in “core” inflation — which excludes the volatile elements like energy, food, alcohol and tobacco.

Core inflation grew by just 0.8 percent, which was the lowest level since March 2001. -AFP

Pound slides

The data sent the pound sliding against the dollar, as they cemented expectations that the Bank of England will not start lifting interest rates until well into next year.

British finance minister George Osborne, whose Conservative government won the election earlier this month, described the data as “good news” for families.

However, Chancellor of the Exchequer Osborne was quick to play down talk of “damaging deflation”.

“Today we see good news for family budgets with prices lower than they were a year ago,” Osborne said.

“As the governor of the Bank of England said only last week, we should not mistake this for damaging deflation.

“Instead we should welcome the positive effects that lower food and energy prices bring for households at a time when wages are rising strongly, unemployment is falling and the economy is growing,” he added.

Deflation can be good for consumers because it means that their wages go further.

But it can trigger a vicious spiral in which companies and households delay their investments and purchases in the hope of even lower prices and costs. In turn, that can throttle demand and spark hefty job cuts. -AFP

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