Is negative inflation a good thing?

Does a decline of 0.1% in CPI really count as deflation? The last time that the UK had negative inflation, according to the Consumer Prices Index (CPI) was in March 1960. At first sight, it can seem like good news; essentials like petrol, food and transport are cheaper than they were a year ago but for those who produce the oil, or the farmers who make the milk, it’s really not good news at all.

A decline of 0.1% looks like more of a case of "negative inflation", not deflation. The only difference being that economists define negative inflation as something short-term, while deflation is longer-term. And as, Mark Carney, said the UK economy was likely to go into negative inflation "briefly." "A temporary period of falling prices should not be mistaken for a damaging spiral of deflation."

So is negative inflation a good thing? Mark Carney has said negative inflation is "unambiguously good". That is because lower petrol and food prices are good for everyone. Even the farmer gets some benefit, because he too buys food and fuel.  If we spend less on filling up our tanks and doing the supermarket shop, we have money to spend on other things. On average, we're each expected to save £140 as a result of lower petrol prices this year. So businesses from fashion stores to fun-fairs should benefit. So for the short-term making things in reality and in perception seem better than they were. Making plans for the future with the election over and the promise of a few extra pounds in the pocket all help the future look a bit brighter.  Enable’s IFAs in bishop’s Stortford are here to help you plan for a brighter financial future.


Issued by: Enable Independent Financial Life Planners 
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
 Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE

UK INFLATION DIPS TO 1.6%

More encouraging news came from the Office for National Statistics (ONS) in mid August, as they announced that the Consumer Prices Index (CPI) had dropped to 1.6% in July from the 1.9% recorded in the previous month. This continues the trend of below 2% inflation throughout 2014, much to the pleasur e of the Bank of England (BoE).

The ONS cited a fall in the price of clothing, probably as a result of retailers extending their sales period to attract consumers, and both non-alcoholic and alcoholic drinks, particularly spirits and New
World wines. There was also a reported drop in the prices of financial services, with some major banks dropping their overdraft rates. Food sales also saw a price fall overall. Food is now 0.4% cheaper than in the same month last year including syrups, jam, sugar, chocolate and confectionery.

Finally, petrol and diesel fuel also saw a decline in price. Currently the average price of a litre of petrol is £1.31, against a price of £1.35 seen at the same time last year.

Whilst good news for the economy, it is not such good news for savers, as they will now need to find a home for their non-ISA savings paying at least 2% (or 2.67% for higher-rate tax payers) to counter the effects of both tax and inflation on their savings.

Meanwhile, the wider Retail Prices Index (RPI) remained static at 2.5%. This is a more closely followed statistic, as many other prices are measured against it, including train fares. The Government has stated that the train operating companies can increase next year’s prices by the RPI rate calculated in July of each year, plus an average of 1%, with flexibility within that for some fares to rise a further 2%. Therefore, some commuters could see their tickets rise by up to 5.5%; well above
the current inflation rate.

Issued by: Enable Independent Financial Life Planners
25c North Street, Bishops Stortford, Herts CM23 2LD
Telephone: 01279 755950 - Fax: 01279 657339
Enable Independent Financial Life Planners is a trading style of Enable Independent Limited is authorised and regulated by the Financial Conduct Authority.
It is important always to seek independent financial advice before making any decision regarding your finances. If you would like any assistance, please contact us.
NOTHING CONTAINED IN THE ARTICLES SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE