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19 May 2015
UK dipping into deflation – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, notes that UK consumer price inflation could fall into negative territory for the first time in the series’ history.
Key Quotes
“Today’s Consumer Price inflation (CPI) report may well show the first YoY negative reading in the current series’ history, dating back to 1989. The Retail Price Index (RPI), which was the former benchmark measure of inflation, did dip into negative territory in 2009 as interest rate cuts resulted in step falls in mortgage interest payments (which are included in RPI, but are not in CPI). Other than that, the previous example of negative inflation was in the late 1950s. In both cases the situation of falling prices was only fleeting and concentrated in a couple of components.”
“This time around the cause is a combination of the plunge in motor fuel costs, the supermarket price war depressing food prices, and lagged effects of sterling strength lowering the price of imported goods.”
“The added impetus in this month’s data is the cuts being applied to utility bills, which should more than offset the impact from the recent rise in petrol prices. Consequently, we suspect headline inflation will come in at -0.1% YoY today.”
Key Quotes
“Today’s Consumer Price inflation (CPI) report may well show the first YoY negative reading in the current series’ history, dating back to 1989. The Retail Price Index (RPI), which was the former benchmark measure of inflation, did dip into negative territory in 2009 as interest rate cuts resulted in step falls in mortgage interest payments (which are included in RPI, but are not in CPI). Other than that, the previous example of negative inflation was in the late 1950s. In both cases the situation of falling prices was only fleeting and concentrated in a couple of components.”
“This time around the cause is a combination of the plunge in motor fuel costs, the supermarket price war depressing food prices, and lagged effects of sterling strength lowering the price of imported goods.”
“The added impetus in this month’s data is the cuts being applied to utility bills, which should more than offset the impact from the recent rise in petrol prices. Consequently, we suspect headline inflation will come in at -0.1% YoY today.”