Inflation has fallen to just 0% - the lowest level on record, according to the Office of National Statistics. Consumer Price Index, which is the official measure of inflation, fell from 0.3% in January to 0% last month.
Inflation was kept flat by downward pressure from food and non-alcoholic beverages which fell 0.2% over the 12 months; in particular milk, cheese and eggs, mineral waters, soft drinks & juices, bread and cereals and sugar, jam, syrups, chocolate and confectionery.
Conversely, furniture, household equipment and maintenance rose 1.4% over the year while recreation and culture – which includes game, toys and books rose 0.8%.
Despite the lack of any inflation over the past year, as measured by CPI, deflationary concerns among economists are abating.
Philip Shaw at Investec said that although the CPI data undershot forecasts, it now looks as though inflation may not dip into negative territory after all.
“The principal reason for this is that petrol prices have recovered in recent weeks and look set to become a modest upside influence to the inflation profile during the coming months,” he explained.
“That said, reductions in gas tariffs by British Gas, the volatility of airfares over the Easter period and the continued weakness of food prices mean that it is touch and go as to whether the UK experiences sub-zero inflation.”
Shaw predicts that by the end of the year inflation will have climbed to a much more normal level of 1.4% as petrol price falls drop from the annual calculation.
Looking at the impact on households, the stagflation news is seen as positive. As Vince Smith Hughes, retirement expert at Prudential, explains, the new inflation low of 0% is good news for most households but particularly good news for pensioners, who typically spend more of their income on food and energy. As the State Pension is pegged to the Retail Price Index rather than CPI, it will increase by 2.5% in April meaning extra cash in pensioners’ pockets.
“Pensioners typically see proportionately higher rates of inflation than people of working age, but now many less well-off pensioners will be seeing significant real-term increases to their incomes,” said Smith Hughes.
