Tuesday, 21 April 2009

Inflation negative, deflation?

The inflation numbers for the year-to-March are out and exciting the commentariat with a leading minus sign. Viz;

CPI: 2.9%, down from 3.2% last month.
RPI: -0.4%, down from 0.0% last month.

So are we in the dreaded deflation?

No, not really. The RPI number is massively artificial. The RPIX number (which is RPI not including mortgages) is +2.2%. The reason RPI seems so low is because the Bank of England base rate is at a record low of 0.5% making mortgages cheaper, especially for those with tracker rates. The temporary cut in VAT is also dragging down the number.

Meanwhile you only have to look in the shops to see that food is going up, clothing is going up, and petrol is back into the mid-90s per litre and may break the £1 again soon.

However that leading minus sign is causing great excitement for those who don't bother looking behind the numbers.

BBC article
Inflation report from ONS

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