By Jonathan Davies
The UK could fall into deflation for the first time since 1960, when the figures are released tomorrow (Tuesday).
Inflation, as measured by the Consumer Prices Index (CPI) fell to 0.0% in February, estimated to be the lowest on record by the Office for National Statistics (ONS).
But City economists are predicting tomorrow’s figures to be between ‘flat’ and a 0.1% fall, which could mean falling into deflation for the first time on record.
A 3.6% rise in petrol prices is expected to push inflation up by 0.1%, but a 5% price cut from British Gas and the ongoing supermarket price war are set to offset that slight rise.
Deflation is generally considered to be a bad thing, because the expectation of lower prices deters people from making purchases, because they expect them to be cheaper in a few month’s time.
But the governor of the Bank of England, Mark Carney, has sought to allay those fears. He has stressed that any deflationary period would be temporary, unlike in Japan where the economy has battled falling prices for 20 years.