As newly released figures show, Britain’s inflation has dropped more than what economists had forecast back in January, reaching its lowest point since 1960. Dropping petrol prices as well as tumbling food costs contributed to this inflation drop and, as luck would have it, further falls are expected.
The notable decrease in petrol prices (which experienced a 8.5p per liter drop from December to January and an overall drop of 16.2pc over the last year) combined with the 2.8pc drop in food prices has significantly contributed to this most joyous inflation drop.
Consumer price growth had recorded 0.5 percent in December 2014, which wasn’t that bad to begin with, however, now reaching 0.3 in January, it has reached its lowest point, the National Statistics Office said. A statistics office model revealed that this is the weakest that consumer price growth has ever been since March 1960 when, despite a 0.4 percent forecasted drop, prices actually tumbled 0.6 percent.
Later this spring, the Bank of England claims, the United Kingdom is expected to enter a so-called deflation period, during which prices will fall overall. According to the Bank of England’s Governor, Mark Carney, things are only looking up. In an interview for the Telegraph, the governor mentioned that inflation rates were most likely going to remain around zero for the remainder of 2015. After this period, he added, it should begin rising again to the Bank of England’s target of 2pc.
“With little sign that low inflation is becoming entrenched, though, the UK’s period of deflation should be of the ‘good’ sort,”
Paul Hollingsworth, Capital Economics expert, said. He also mentioned that, while the full impact of the oil price drop on petrol prices had been seen, what has yet to come into full effect is its impact on other goods.
Granted, there are certain dangers during periods of prolonged deflation, however, the Bank of England isn’t the least bit worried, especially since these effects are most likely temporary and related to energy prices. So experts now believe that the United Kingdom will, indeed, experience a short-lived deflation period, estimated around March or April of 2015.
On the other hand, such a deflation period, combined with stronger pay, will aid British citizens in actually seeing the most marked income increases in over 10 years. As a result, economists expect the real post-tax income to experience a 3.5pc rise this year, the largest since 2001. And if there is any fear that the Monetary Policy Committee will consider a raise of interest rates, this only depends on the way that the UK wage growth actually progresses.
For now, at least, British citizens can finally breathe easy as they no longer need to struggle with the ever-rising fuel, food and electricity prices.
Image Source: Agenda We Forum
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