Inflation turns negative for the first time in over 50 years - but it should only be a blip

 
Jessica Morris
Follow Jessica
Falling prices mean Britain slipped into deflation in April (Source: Getty)

Britain fell into deflation for the first time since the 1960s after data released today showed the consumer price index (CPI) had dipped into negative territory.

The Office for National Statistics said prices fell 0.1 per cent in the year to April on a fall in air and sea fares due to the timing of Easter.

The consumer price index – the basket of goods used to measure inflation – has not fallen below zero since it began in 1996. And experimental data suggests it has not been negative since 1960.

The government was quick to espouse the benefits of a brief period of low and even negative inflation for consumers as well as the wider economy and say the UK isn't at risk of falling into 1930s-style deflation.

Chancellor George Osborne said:

Today we see good news for family budgets with prices lower than they were a year ago. 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. Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise.

Last week the Bank of England's quarterly inflation report said that it will stay close to zero before rising "notably" towards the end of the year as they impact of oil and food price increases fade away.

Nonetheless, it doesn't expect inflation to hit its target of two per cent until 2017.

And BoE chief Mark Carney has repeatedly stressed that the current period of low inflation is temporary and last week he warned it "should not be mistaken for widespread and persistent deflation".

City economists have also said that the deflation will be short-lived and that the economy isn't showing signs of falling into a prolonged deflation spiral.

Further weak inflation numbers are to be expected in coming months, but any dip into deflation is likely to be short lived, and the UK shows few signs of sinking into a Japanese-style deflationary slump," Chris Williamson, chief economist at Markit, said.

The inflation rate looks set to start picking up later this year, largely in response to the price of oil, and could easily move back into positive territory as early as May due to the fact that April’s numbers were driven lower by the timing of the Easter holidays."

Related articles