Feeling Deflated?

UK Inflation graph

So, Britain has officially fallen into a period of deflation, for the first time in nearly 50 years, with the news today that the Retail Price Index (RPI), has gone sub zero, to -0.4%.

What does this mean? Well, on the whole prices are falling – although RPI is only one measure of inflation, and it has largely been dragged down by the reduction in mortgage costs (RPI includes mortgage repayments in its figures  – another measure of inflation, the Consumer Price Index (CPI), does not) as the bank of England has cut interest base rates, along with the continual slide in the values of houses.

Interestingly, the RPI is used by a lot of companies in their calculations for wage increases, and so a negative figure is likely to mean companies are less likely to award pay rises.

However, the CPI is still positive, and is still above the Government’s target rate of 2%, but it is falling. Notably, women’s clothing and toys such as computer games are 2 of the items that have risen in price, but gas bills, air fares books and vegetables have pulled the CPI down. So if you’re a male vegetarian bookworm with a gas fired home and penchant for foreign travel then you’re probably laughing.

Read more on how you might benefit or lose out from this period of deflation.

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