No need to panic over price deflation say experts

THE economy has fallen into deflation, official figures reveal.

In April, UK inflation was at -0.1%, compared with a rate of 0% in March, the Office for National Statistics said. It is the first time the rate of inflation has slipped below zero since 1960.

The ONS said: “The main downward push on inflation came from air and sea fares. Prices for both rose on the month, but by far less than a year ago, with the timing of Easter a likely factor.”

Business lobby group the Institute of Directors said the news should not be a cause for concern.
 
Chief economist James Sproule said: “The slip into deflation should not worry us, as it is primarily caused by a drop in the cost of energy, which is good news for households and businesses. Falling prices in necessities, such as food and transport, along with a period of sustained job creation and wage growth mean demand and consumption will remain buoyant.

“Deflation can be a chronic problem where it represents a lack of consumer confidence and an unwillingness to spend.

“This danger is very real in some parts of southern Europe, but is not even a distant threat in the UK. While deflation does cause the cost of debt to rise in real terms, the benefits to the wider economy of a period of falling prices far outweigh any downsides.”

Rain Newton-Smith of CBI added: “Falling oil prices has been good news, boosting household incomes and lowering costs for businesses outside of the North Sea oil sector, which is being hit.

“With inflation set to remain below 1% this year, a rise in interest rates anytime soon seems off the cards. Rates are likely to remain low into next year and beyond, continuing to help the domestic recovery.”