Inflation may turn negative

PUBLISHED: 14:40 18 May 2015 | UPDATED: 14:40 18 May 2015

ECONOMY Rates. Photo: submitted

ECONOMY Rates. Photo: submitted

Inflation could turn negative when latest official figures are published by the Office for National Statistics (ONS) tomorrow.

Bank of England projections suggest the Consumer Price Index (CPI) measure of inflation fell to minus 0.1pc in April, though some economists expect it will remain at zero for the third month in a row.

CPI is at its lowest level since comparable records began in 1989. It was last negative, according to an experimental data series, in March 1960, at minus 0.6pc - when Harold Macmillan was Prime Minister and Dwight Eisenhower US president.

March’s figures showed that, when calculated to two decimal places, inflation was minus 0.01pc - turning negative by the smallest of margins.

Last week, the Bank of England said in its quarterly inflation report that it expected inflation to fall below zero before picking up “notably” towards the end of the year as the effect of oil and food prices fade.

In a letter to the Chancellor explaining why CPI remains more than 1pc off its 2pc target, Bank governor Mark Carney said he expected to write further such letters in coming months.

But he stressed that a temporary period of falling prices ought not to be mistaken for a damaging spiral of “deflation” - a prospect which might have unwelcome consequences such as households and businesses putting off spending and investment.

Samuel Tombs of consultancy Capital Economics said: “Deflation is likely to be for one month only.

“The recent rebound in oil prices and stability of global food prices indicates that the negative contribution to inflation from energy and food prices will fade over the coming months.”

Scotiabank’s Alan Clarke pencilled in inflation at zero for April, with petrol price rises pushing up CPI and Budget changes to alcohol and tobacco “sin taxes” dragging it down - as well as the impact of the timing of Easter on air fares.

Howard Archer of IHS Global Insight said: “It is possible that the UK experienced marginal deflation in April, but we believe that this was probably avoided largely due to a strengthening in oil prices taking petrol prices off their recent lows.

“In fact, we believe that the firming in oil prices means that there is now a good chance that the UK will end up dodging deflation.

Investec economist Philip Shaw predicted inflation at minus 0.2pc in April, but also forecast that it would re-enter positive territory in May.

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