Tuesday, 14 February 2012

Some actual deflation has happened

The CPI and RPI numbers for the year to end of Jan 2012 are out. CPI fell to 3.6% in January, down from 4.2% in December and RPI fell to 3.9% from 4.8%.

So still massively over the 2% target, 80% over to be precise, but moving in the right direction. However dig into the small print of the RPI numbers and what do we see...

RPI December 2011... 239.4
RPI January 2012...... 238.0

Yes Siree, prices actually came down during the month of January, stuff is literally cheaper. And in case you think this is a usual post-Christmas effect, let's go back a year...

RPI December 2010... 228.0
RPI January 2011...... 229.0

So there was a rise over January last year. However if you go back another year you do see a tiny 0.1 reduction in the index...

RPI December 2009... 218.0
RPI January 2010...... 217.9

So January can be a deflationary month, but a whole 1.4 off the index is pretty impressive. Let's hope that 1) it is sustained in coming months, and 2) it's not an early warning of the next recession.

Remember, the Holy Grail, what we really, really want, what we expect our political leaders to deliver for us is... non-inflationary growth.

Unfortunately all the signs are that just as inflation went away so did growth. It looks like Q4 of 2011 will turn out to have a negative GDP. The first estimate was -0.2%. So still no cigar guys!

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