Robust retail sales quell low inflation fears
THE UK retail industry grew rapidly in February, dispelling fears that low inflation would be harmful to the economy.
Some economists are concerned that if prices are dropping, consumers may opt to delay purchases. However, retail sales were 5.7 per cent higher in February than in the same month last year, according to figures released yesterday by the Office for National Statistics (ONS).
Meanwhile, shop prices dropped by 3.6 per cent in February compared with February 2014 – the largest one year fall since comparable records began in 1997, the ONS said.
The biggest contribution to falling prices came from petrol stations, where prices dropped by 15.5 per cent – the largest year-on-year fall on record.
Annual inflation in the wider economy was zero in February, the lowest since the specific measure of inflation began in 1988.
“If you wanted a demonstration that low food and energy prices are good for consumer spending, then this is it,” said Alan Clarke, head of European fixed income strategy at Scotiabank.
“People are clearly not deferring their spending plans amid deflation speculation – they are spending the windfall. This is good news for growth and should probably mean that the second round effects for inflation will be positive.”
Clarke’s views were backed up by other economists downplaying the cost of below-target inflation.
“Explaining this is not rocket science,” said economist Rob Wood from Berenberg Bank.
“Cheaper petrol, food and import prices are cutting shop prices fast, leaving consumers with a little more money to spare after buying essentials. And UK consumers being the shoppers they are tend to spend that extra disposable income rather than worrying about the mythical deflation beast.”