Inflation turns negative again

Hargreaves Lansdown economist Ben Brettell commented on the drop saying that it relieved pressure on the Bank of England to “lift interest rates”.

United Kingdom inflation turned negative again in September and factory gate prices continued to decline strengthening the assessment that interest rates are unlikely to be raised anytime soon. “As such, their downward effect on inflation will diminish, and CPI growth could reach nearer to 1% by December”. Tomorrow we will hear how fast average earnings are increasing but with expectations close to 3% then this will probably be the amount by which the state pension rises next spring. Encouragingly, manufacturing sector, which constitutes over 75 per cent of the index, grew by 6.9 per cent in August, 2015 against a contraction of 1.1 per cent in the same month previous year.

Between August and September alone, “fuels and lubricants” for cars fell by 2.9 per cent. Petrol was the biggest faller – with prices dropping 3.7p per litre between August and September.

Inflation in the food and beverages category too was two times higher at 4.29 per cent in September, followed by inflation in cereal.

Retail price inflation fell to 0.8 percent in September from 1.1 percent in August.

Over the past year, prices for everyday goods have fallen by 0.1 per cent, the Office for National Statistics said.

“A smaller than usual rise in clothing prices and falling motor fuel prices were the main contributors to the fall in the rate”, the ONS said. Chancellor George Osborne has already announced that a number of benefits, such as Jobseeker’s Allowance, child benefit and a few housing benefit, will be frozen from April anyway, as part of a four-year freeze; but these latest figures feed into the government’s rhetoric that a rise is not required.

The MPC said United Kingdom growth was seeing a “gentle deceleration” since hitting a peak in 2014 and could continue to ease back if the global economy weakens.

Global concerns, especially surrounding China and other emerging markets, have been well-documented, but there are also signs the domestic economy could be faltering.

Events in the rest of the world have been pushing inflation in the opposite direction. And for the second time in a year, the United Kingdom economy has slipped into deflation.

TUC general secretary Frances O’Grady said: “Inflation stuck “at or around zero” suggests the recovery is not fully secured and that future living standards gains can not be taken for granted”. Economists had expected prices to remain unchanged at 0pc.

David Kern, chief economist said the anticipated inflation to stay at or below for most of the year. But while inflation is temporarily low, central bankers are under slightly less pressure to bring interest rates back up to more normal levels.