Enjoy it while you can! Analysts say deflation will not be here to stay

Chris Papadopoullos
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The last time the UK experienced deflation was in the 1960s
Deflation has finally arrived in the UK for the first time since the 1960s, but economists are almost unanimous in saying it will be temporary.
Inflation – as measured by the year-on-year change in the consumer price index (CPI) – was minus 0.1 per cent in April. The last time inflation was this low, the price of a loaf of bread was 4.8p and milk was a mere 3.3p a pint.
Chancellor George Osborne welcomed the UK’s deflation.
“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,” he said.
His words echoed the view of many economists who have said deflation caused by cheaper food and oil is a good thing, and it should not be confused with harmful deflation caused by weak spending and falling incomes. But the good times are not expected to last.
“Looking ahead, the UK’s deflation is likely to last for one month only. CPI inflation should return to positive territory in May, as the effect of the shifting timing of Easter ceases to depress it, and as the negative contribution from energy and food prices starts to fade,” said economist Samuel Tombs from Capital Economics.

He added: “There are still few signs that very low inflation is having malign economic effects – consumers are undertaking, not delaying, purchases.”
Meanwhile, some are concerned that inflation could rebound quickly.
“I am always concerned when something has been written off, and inflation is definitely in that camp currently,” said Henry Dixon, fund manager at investors Man GLG.
“In my view, when some of the short-term factors, such as the fall in the oil price come out of the equation, it could overshoot the official target and climb back up near to three per cent by January.”


The girdle (a woman’s undergarment designed as a slimming aid) was among several new additions to the basket of goods tracking inflation in the early sixties. The plastic bucket replaced the galvanised version and out went the mangle (a device for squeezing excess water from freshly washed linen) and the teapot. In came Sherry, Keg beer and the wrist watch. Boy’s blazers replaced the Boy’s two-piece suit. Tinned stewed steak made its debut, along with blended butter and sliced white bread. Reflecting the growing affluence, prices of refrigerators, cookers, gloss paint and ceiling paper were added to the index.

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