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UK Inflation at 0%

Tuesday, March 24, 2015

The rate of inflation has been steadily decreasing in recent months and finally hit 0% in February, according to official statistics. This now means that inflation is at its lowest level since records began in 1988.

UK Inflation (2005 - 2015)

The fall in the Consumer Prices Index (CPI) has been attributed to lower prices for food and computer goods, but the decrease was more pronounced than experts had anticipated.

The CPI tracks the cost of living in the United Kingdom, but does not include housing costs and mortgage payments. It is worth noting that the Retail Prices Index (RPI) does include these figures and was negative for much of 2009.

While low prices will be a relief for many people, it is bad news for savers. Zero inflation is likely to mean that interest rates remain at their historically low levels for some time to come. An increase in interest rates tends to mean that consumers have less money to spend which causes the economy to slow and deflation to decrease further. However, the inflation news, plus uncertainty surrounding the general election is likely to be beneficial for the gold price in the short term.