Retail prices index (RPI) inflation has turned negative (subscription required) for the first time since February 1960, according to latest official figures published today. Today's data show a sixth consecutive monthly fall in RPI, dropping by 0.4 percentage points to stand at -0.4% in March 2009. However, this outcome does not necessarily mean that deflation has arrived.
In a detailed analysis of the phenomenon of deflation (PDF format, 353K) (on the Bank of England website) published recently, the Bank of England defines deflation as follows:
[A] persistent fall in the general level of prices (such as CPI, RPI or the GDP deflator).
By this reasoning, the Bank of England says that the short-lived dip into negative territory seen "for the occasional month in 1959 and 1960" does not constitute deflation. However, the more or less continuous falls in prices seen between 1923 and 1933 do qualify as "genuine deflation".
Encouragingly, the Bank of England's own assessment of the current situation is that:
RPI is likely to fall temporarily, mainly reflecting reduced mortgage interest payments.
Therefore, genuine deflation is unlikely to arise from the current economic downturn, at least in the Bank of England's current estimation.
- Has your organisation recently carried out an annual pay review? If so, and if it has now been settled, please get in touch so that we can add your organisation's pay award to the IRS database.
|
| Permalink | Email this |
