Current inflation rate – September 09

As both retail and consumer price indexes fall again, could the UK be heading for a prolonged period of zero-rate inlation or deflation.

By News Desk
13th October 2009 at 17:29

September 2009 inflation slows againThe latest official figures from the Office of National Statistics show the Consumer Prices Index (CPI) taking a further fall during September 2009 with inflation for the month at 1.1% compared to 1.6% in August.

Quite apart from the impact on sterling, a period of zero inflation or even deflation looks quite possible.

The Retail Prices Index (RPI) still languishes in negative territory, also having fallen in September by 0.1% to 1.4%.

Gas and electricity prices were the major contributor to the downturn in inflation with prices unchanged month-on-month, but not increasing as they did a year ago when tariffs went up.

Other areas dampening inflation were food and drink, restaurants and hotels and recreation and media sectors where the price of DVDs and to a lesser extent games and toys increased by less than a year ago.

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

Given the threats facing the economy, this allows the MPC to provide additional stimulus without fear of a short-term upsurge in inflation.

Quantitative easing by the Bank of England may not have filtered through into the system according to many economists.

Meanwhile businesses importing goods will find the effects of low inflation making conditions tough as sterling continues to fall against the Euro in particular.

What is uncertain is whether the Bank of England pumping money into the economy will have the desired effect or not.

SmallBizPod spoke earlier in the week to renowned economist Roger Bootle who believes deflation could still represent a very real threat to the UK economy in much the same way it did to Japan during that country’s ‘lost decade’.

[Picture credit: timparkinson licenced from Flickr]

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