CPI inflation goes negative, RPI inflation stable at 0.9%
The Consumer Price Index (CPI) measure of annual inflation dropped from zero to 0.1% last month, going negative for the first time since records began.
The price indices produced by the Office for National Statistics represent the change in overall average prices over the previous 12 months - in other words this is saying that average prices in April this year were very marginally lower than prices in April 2014.
The drop into negative territory is almost certainly a temporary consequence of the large once-off drop in oil prices last year and is not expected to last more than a couple of months. Nor does it suggest that the actual trend in prices was necessarily downwards in April, just that a very slight overall upward trend in everything else over the last 12 months was not enough to offset last year's drop in oil prices.
Inflation as measured by the Retail Prices Index (RPI) in April remained unchanged from the month before at 0.9%.
"Falling prices raise consumer spending power and help keep interest rates low. This looks like the mild and benign variety of deflation, which is good news for consumers and for growth," he said.
Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former member of the Bank of England's Monetary Policy Committee, said he did not expect the fall in prices to be sustained.
"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."
The sting in the tail of these comments about negative inflation being positive for growth is that they are only correct if people do not expect prices to continue falling.
The price indices produced by the Office for National Statistics represent the change in overall average prices over the previous 12 months - in other words this is saying that average prices in April this year were very marginally lower than prices in April 2014.
The drop into negative territory is almost certainly a temporary consequence of the large once-off drop in oil prices last year and is not expected to last more than a couple of months. Nor does it suggest that the actual trend in prices was necessarily downwards in April, just that a very slight overall upward trend in everything else over the last 12 months was not enough to offset last year's drop in oil prices.
Inflation as measured by the Retail Prices Index (RPI) in April remained unchanged from the month before at 0.9%.
'Mild and benign'
Ian Stewart, chief economist at Deloitte, told the BBC that the fall was "likely to prove short-lived and positive for growth"."Falling prices raise consumer spending power and help keep interest rates low. This looks like the mild and benign variety of deflation, which is good news for consumers and for growth," he said.
Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former member of the Bank of England's Monetary Policy Committee, said he did not expect the fall in prices to be sustained.
"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."
The sting in the tail of these comments about negative inflation being positive for growth is that they are only correct if people do not expect prices to continue falling.
Comments
Essentials - well people are not going to put off buying food for 6 months because they know its going to be cheaper.
None essentials - A new mobile phone is released, now we all know the price of the model will fall over the next year, but there are many people who still queue up to buy it on the day its released. Same as video consoles/games, televisions, computers.
There is a benefit of buying now even if you are 100% certain it will be cheaper in 6 months, the benefit is having the item for those 6 months, that's why people are willing to pay more.
You don't wake up in the morning crying because you can buy more with your wages this month than you could last month. and you dont not buy the things you want because it will be cheaper next month, no you buy it this month to have it THIS month.
deflation keeps interest rates down, which is good for borrowers, and is off set by the deflation being good for the savers and the lenders. (win/win/win)
People say house prices falling is bad, but why? think of your mortgage as your rent, you are paying rent to live there now. If you sell sure you may get less than you paid but the house owes you nothing, as you have been living there, also your new house will be cheaper so that's offset too.
it really is not the big deal its made out to be.
Of course they will, they want it now. Like we see every day of our lives, you pay more to get the latest NOW, thats why you pay more.
all of this "no one will spend" is utter rubbish
This is interpreted by many serious economists as meaning you keep inflation as close to zero as possible while keeping just enough demand pressure in the economy to ensure that it's close on the positive side rather than the negative side.
Personally I think that the "institutional memory" of organisations like the Treasury and the Bank of England is crying wolf to some extent, because the type of deflation they are worried about has not happened in your or my lifetime.
However, during the 19th century true deflation did used to happen on a very regular basis, and that continued up to and including the 1930s "Great Depression."
So although you are perfectly entitled, Jim, to the view that a classic depression is not going to happen in present circumstances - and as it happens I think I agree with you - the Bank of England and the experts are entirely reasonable in watching like hawks for any signs that a deflationary spiral might develop so that if it does they can take action to head it off.
Since we know that that kind of spiral has happened in the past it would be foolish in the extreme to pay no attention at all to the possibility that it might happen again.