Economy avoids deflation

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THE rate of inflation was unchanged in March at 0%, the Office for National Statistics said.

The main downward pressures on prices came with falls in clothing and gas costs.

These were offset by a rise in the price of petrol and diesel and smaller upward contributions from a variety of other products such as food, the ONS said.

While CPI inflation was in line with expectations, core inflation – which strips out energy costs and food prices, was below expectations at 1% – economists had expected 1.2%.

At least one expert believes deflation is not far away on the horizon.

Vicky Redmond, chief UK economist at Capital Economics,  said: “The indirect impact of lower energy prices will take a while to come through and so the core rate could drop further in the coming months, tipping the headline rate below zero.

“Even if the UK does narrowly avoid deflation, inflation is still likely to hover close to zero for most of 2015.”

Martin Beck, senior economic advisor to the EY ITEM Club, added: “We expect inflation to remain close to zero until the latter months of this year, at which point the base effects, caused by the collapse in oil prices, will begin to kick in. But core inflationary pressures are likely to remain well contained, ensuring that inflation remains below the 2% target for a prolonged period.

“Therefore, while the threat of ‘noflation’ becoming entrenched looks low, there is equally little threat of inflation taking off. Against this backdrop we continue to expect the Bank to wait until early 2016 before raising interest rates, with consumers continuing to enjoy a healthy boost to their spending power in the interim.”

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