We were all much relieved in Britain at the end of March when a widely anticipated deflationary figure for RPI in February came in just above zero at 0.1 per cent.
Alas, such relief has proved short-lived. The latest inflation numbers from the UK’s Office of National Statistics present at -0.4 per cent the first negative annual reading for the retail price index since 1960. Here’s the relevant par from the release:In the year to March, the consumer prices index (CPI) rose by 2.9 per cent, down from 3.2 per cent in February. In the year to March, the all items retail prices index (RPI) fell by 0.4 per cent, compared with no change in February, that is, an annual rate of 0.0 per cent. Over the same period, the all items RPI excluding mortgage interest payments index (RPIX) rose by 2.2 per cent, down from 2.5 per cent in February.
The leading downward contribution to the change in the RPI according to the ONS came from housing, principally from house depreciation and mortgage interest payments. These of course are not accounted for in the CPI measure, which at 2.9 per cent remains firmly above the government target of 2 per cent. As UK economist Howard Archer at IHS Global Insight states, this demonstrates to what extent UK CPI is markedly stickier than in the Eurozone, most likely due to the upward impact on prices from sterling’s sharp depreciation.
Other downward contributions to RPI meanwhile also came from:
• fuel and light where, as in the CPI, gas prices fell this year but were unchanged a year ago, and the price of heating oil fell this year but rose a year ago
• food where prices overall fell this year but rose a year ago. The effect came from across a range of both seasonal and non-seasonal foods with the largest contributions from fresh vegetables and fresh fruit
• fares and other travel costs where, in the other travel costs section, passenger air fares fell this year but rose a year ago with the main effect coming from European routes partially offset by domestic fares.
To help you cope with the new price environment here’s what Britain looked like 49 years ago.
Related links:
Deflation avoided, phew – FT Alphaville
1960s mini advert – Youtube
1960 – Wikipedia