Current Inflation Rate – March 09

Not since 1960 has the Retail Prices Index (RPI) gone minus as it has done in March 2009, falling 0.4% to stand at -0.4%.

The Consumer Prices Index (CPI) also continued to drop during the final month of Q1.

The largest downward pressure on the CPI reported by the Office of National Statistics came from housing and household goods thanks largely to a fall in gas and other heating bills compared to a year ago.

There was also a smaller rise than a year ago in terms of petrol prices and a fall in the price of fuel helped reduce the cost of European flights.

As a result the CPI fell to 2.9% in March from 3.2% the previous month.

David Kern, chief economist at the British Chambers of Commerce said:

RPI is in negative territory and fell by more than expected. Deflationary pressures could make the recession worse in the short-term, despite quantitative easing and the huge budget deficit posing inflationary pressures over the medium-term.

RPI deflation will put negative pressure on wages which will aggravate recession, but government debt and likely future tax rises look set to create a whole other set of problems for the economy just as some may feel the recession is easing.

The Budget looks tougher and tougher for Mr Darling.

[Picture credit: James Cridland licenced from Flickr]