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Wednesday 25th of March 2009
March 24, 2009

Deflation set to return as the RPI turns negative


by Peter Charalambous
 Inflation set to return as the RPI switches negative

The Retail Price Index (RPI) fell to 0% for the first time in nearly fifty years, as the fall out from the credit crunch continues to batter Britain’s shaken economy with the threat of deflation.

However, the The Consumer Price Index was reported at 3.2%, rising from 3% last month, suggesting activity on the high street may be stronger than normal.

The Bank of England is concerned about effect deflation on those who are in debt, as the real value of their debts rise as they are fixed.

There is also mounting fear that the millions of public sector workers who may face pay freezes over the next three years due to the bite of deflation may also cause a reduction in public spending.

George Buckley, Deutsche Bank’s chief UK economist, said that he is forecasting an RPI reading of -0.7 percent but it could go as low as -4 percent.

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  • Discuss this in the Finance Markets forums

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