Decline in the UK Economy Even Deeper into Deflation
Tuesday, May 19, 2009 15:43
Inflation on the retail price index (RPI indicator) measures, which includes housing costs, a sharp drop to 1.2pc in April this year, from – 0.4pc 3 months, the National Bureau of Statistics (ONS) said. This is the lowest retail price index figures on record in 1948, lower than economists had forecast.
Jonathan Loynes, at Capital Economics said that the inflation data as a reminder that “too low inflation or deflation, is still a greater risk than in the next few years a rapid increase in inflation.”
Inflation: workers facing a pay freeze as a greater rate of decline in prices since 1933 in the largest.
The main driving force was mainly to lower loan interest, the Bank of England decision to cut interest rates by 0.5 points to 0.5pc 3 months, the National Bureau of Statistics said.
Other contributing factor is the falling house prices and rental costs, reduce the cost of Council tax, lower natural gas and electricity bills and food prices. Housing-related costs decreased by a total of 12.1pc in April this year.
Although prices in the short term to attract consumers, the retail price index is used to calculate the wages for the sharp fall in April may be added to the resulting downward pressure on salaries has been a rise in unemployment and declining corporate profits.
“As a result, many workers are likely to see wage freezes or even pay cuts,” said Howard Archer, chief UK economist at Global Insight Inc. of IHS.
Constitute a further threat of deflation to the economy, if people expected prices to fall further, and procurement plans can be set aside, if this trend continues, leading to production cuts, and even more job losses.
U.S. consumer price index (CPI), not including housing costs, is the Government’s preferred measure infaltion, down 2.9pc to 2.3pc 4 in March on. Economists had been expecting the consumer price index will drop to 2.4pc. This figure – the lowest since January last year, down mainly due to lower electricity and food prices.
Although the consumer price index is now close to the official 2pc target, is expected to be less than 2pc in the coming months remains very low oil prices, utility and food bills further down, as well as retailers cut prices to attract customers. Once can not achieve this objective, the Bank of England is expected to remain in the next three years, indicating that last week. “It looks like the impact of inflation, economic recession has begun to pressure over the inflationary impact of a weaker currency,” Credit Suisse said in a research report.
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