UK Inflation Tumbles As Expected

Published / Last Updated on 20/05/2020

The Office for National Statistics (ONS) reported today that the Consumer Prices Index (CPI) dropped to rate 0.8% pa in April 2020.  This is its lowest rate since August 2016.

CPI was 1.5%pa in March meaning inflation has nearly halved in a month. 

This was expected given coronavirus lockdown.  People cannot travel meaning falling petrol and diesel prices, plus lower energy bills have contributed to lower inflation.  Oil prices even went negative for a few hours earlier last month.

As you may also expect, games, toys, garden equipment and home repair, paint and DIY prices rose with people spending more time at home.

Comment

We expect inflation to remain low and even go negative i.e. deflation (prices falling) over the coming months.  Central banks and governments will be fearful of this deflation and will no doubt cut interest rates to negative and encourage people to spend money.  

Why would they do this?  If inflation goes negative, the economy effectivly dies.  Why would you buy a television, car, clothes, paint or anything today if you know it will be cheaper next month?  Deflation means an economy can self implode.

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