UK Dips Into Deflation For First Time In 50 Years

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Britain has slipped into deflation for the first time in more than 50 years, according to the Office of National Statistics.

The official measure of inflation, the consumer price index (CPI) registered a rate of -0.1% for April after sitting at 0% for February and March.

The ONS disclosed the main factor in the drop was the falling price of oil that made fuel prices cheaper for ship and airline companies.

Chancellor George Osborne and Bank of England governor mark Carney have warned a period of deflation was likely in Britain this year due to the plunging cost of oil – down from around $100 a barrel a year ago to about $60 a barrel now.

The effect of a production war between oil producing countries has seen a glut of the commodity on the market as the big producers, such as Russia, the USA and Saudi Arabia, have failed to turn off supplies in fear of losing market share.

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Falling prices

Carney has an inflation target of 2% for the Bank of England and has explained that after a few months of deflation, the economy will rise back into inflation.

“Households and businesses should not worry too much,” he said. “Falling energy prices are good news for everyone and a drop in the cost of food has also contributed to lower inflation.

“But more jobs, a growing economy and rising pay will more than compensate and lift the country out of deflation within a few months.”

Economists talk about good and bad inflation.

Bad inflation is when an economy is in a downward spiral and consumers put off buying goods and services in the hope prices will fall further.

Enjoy the experience

Carney says Britain is experiencing good deflation. Prices are falling because of outside influences and the general economy is reasonably healthy and in a state to weather the storm.

This is reflected in a strong Pound and a feel-good effect giving households more spending power in their pockets.

“Everyone should enjoy this lull in the economy while it lasts,” said Carney. “By the end of the year we should be back on track and moving towards our 2% target unless unforeseen factors come to bear.”

The British economy has never experienced since CPI records started in 1996 and other economic records were collected from the 1960s onward.

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