Does the recent negative Retail Price Inflation figure signal that we are moving towards a deflationary environment?
The Retail Price Inflation figure (RPI) fell into negative territory for the first time in nearly 50 years in March 2009, as April’s figures confirmed. The Index was flat on the month but was down 0.4% year on year. The RPI is a wider cost of living index than the Consumer Price Inflation measure, since it includes the likes of housing costs. Traditionally, deflation is a time of falling prices the theory runs that consumers hold back expecting prices to fall further, which they do as suppliers and retailers’ pricing power is dampened, thus creating a downward spiral. However, the fall in the oil price (feeding through to fuel prices) and some downward pressure on food and drink also contributed to this figure. Most analysts agree that the current low interest rate environment means that the fall is technical not signalling deflation and point to the fact that the CPI remains at 2.9%, still well above the Bank of England’s target of 2%. It has also fallen less sharply than other indust
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