Current Inflation Rate – Feb 09 & small business deflation

Despite the predictions of many economists official inflation figures released today reveal a 0.2% rise in the Consumer Prices Index (CPI) for February 2009.

This surprise increase was counterbalanced by the much anticipated fall of the Retail Price Index (RPI), which includes mortagage interest payments and council tax, to 0.0%.

Food and non-alcoholic drinks were the biggest upward pressure on the CPI during February. The only downward pressure on consumer prices came from energy bills which remained static last month compared to an increase the year before.

Downward pressure on the RPI was primarily exerted by falls in the cost of housing thanks to the plunging property market and falling interest rates.

The 0.0% RPI means the spectre of deflation is now very real. And the strange divergence of the RPI and CPI could see wages frozen or cut at a time when many prices are not falling as rapidly as some predicted. Not a good combination in terms of stimulating consumer spending.

For small businesses, however, falling prices are a mixed blessing. Some will benefit from the reduced costs of fuel or transport, but others holding a large amount of stock may well be looking on to see its value falling by the day.

A recent survey by More Th>n showed that UK SME’s costs fell by 2.9% during the last quarter of 2008.

Although not all deflation is wealth destroying, many small businesses will be wanting to cut costs, improve productivity, review contracts and make sure supplies are ordered in smaller, just-in-time batches.

[Picture credit: FireChickenTA99 licenced from Flickr]