Inflation At 4 Year Low 0.5%pa

Published / Last Updated on 18/06/2020

The second month of the coronavirus lockdown saw the UK’s inflation rate for May fall to 0.5% pa.  This is the lowest annual rate in 4 years.

The Office for National Statistics (ONS) also reported fuel prices down by 16.7%, games and toy costs falling as well as shop prices are showing significant falls.

The ONS also suggests it is finding it difficult to compile inflation figures due to most of the economy being closed.

Consumer Prices Index (CPI) is still 2% below the Bank of England’s target for inflation and interest rates are currently at 0.1% the lowest in 325 years of the Bank's history.

Comment

These figures are just start of a period of downward pressure.  A slowing economy will put pressure on the Bank of England's Monetary Policy Committee, meeting later today to either cut interest rates and/or offer more quantitaive easing to boost the economy.

Inflation is the rate at which the prices for goods and services increase. Inflation %’s increase or decrease in prices over time.  If the inflation rate is 2% a year for the cost of a litre of petrol, motorists need to spend 2% more at the pump than 12 months earlier.

If wages don’t keep up with inflation, purchasing power and the standard of living falls.  We expect a period of stagnant wage growth whilst buisinesses rebuild and then a period of higher wage inflation and CPI increases for goods and services.

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