Deflation hits the UK for first time in 50 years

Deflation hits the UK for first time in 50 years

Retail price inflation hit a 50 year low official data highlighted.
The retail price index which is a wider cost of living index and includes hosuing costs fell was flat and fell to -0.04 percent year on year, which was the first negative reading since March 1960 as reported by Reuters news.

City analysts dismissed deflation as wide of the mark, and the retail price index as not fully indicative of the state of the economy. The fal in the retail price index was predictable after the fall in interest rates but it does not mean we are going head long into a deflationary economy. The figures of the retail price index support the Bank of Englands assumption that as the recession dampens the producers pricing power that inflation will ease.

A deflationary economy would only further increase the pain in the economy at the moment as price falls would only put off people from spending further, knowing that prices may only fall further next month. With the ramifications for business being hard to take and unemployemeny rising thus further reducing spending in the economy. Furtunately, indications so far suggest that this is wide of the mark.

What do you think about deflation? Let us know your thoughts?

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