Inflation Stays at -0.1% in October

The Office for National Statistics has released figures for the Consumer Prices Index, which reveal that inflation in the UK has stayed at -0.1% in October.

This revelation has led many to further reduce their predictions of an increase in the base rate of interest in the near future.

Earlier in November, the Bank of England stated that inflation risks were being depressed due to a weakening global economy.

Many experts have now predicted that interest rates will not rise until late in 2016.

The figures for October represent the only time that the CPI (Consumer Prices Index) has fallen for two months in a row on an annual basis, since the very first time that the index was started- back in 1997. Even though the cost of clothing went up last month. this was countered by a fall in the price of things such as food, tobacco and alcohol.

The figures, released by the Office for National Statistics, showed that food and drink prices went down by 2.7%, energy costs were 4.1% down and fuel costs fell by 14%.

A statistician for the ONS, Richard Campbell, said:

“This is now the ninth month running that CPI has been at or very close to zero.” The Bank of England released its inflation report for the third quarter, earlier this month, in this report they said that inflation was not expected to reach 1% until the last six months of next year and it will be at least another two years before the target of 2% would be met.

The Office for National Statistics also use an index of core price inflation which removes considerations for the cost of food, energy, alcohol and tobacco. This index rose to 1.1%, when many economists predicted that it would remain at 1%.

It is thought by many economists that this negative rate of inflation will provide a short term boost to the economy.

The chief economist at Markit, Chris Williamson, said:

“The benefit of ongoing low inflation is not only that interest rates will stay lower for longer but that real wage growth remains robust, which will in turn continue to boost consumer spending power and help sustain the economic upturn.

“The deflationary picture supports the Bank of England’s dovish outlook, which envisages interest rates staying on hold until 2017. However, this outlook is dependent on oil prices and wage pressures remaining low, both of which remain something of an unknown.”

The senior economic adviser at PwC, Andrew Sentance, said that these figures did not represent a move to “a more generalised deflation”.

He went on:

“Meanwhile, consumers continue to benefit from the combination of stronger wage increases and very slightly falling prices. The resulting increase in real wages and household disposable incomes should continue to be supportive of consumer spending and economic growth over the year ahead.”

The ONS commented saying:

“Upward price pressures for clothing and footwear and a range of recreational goods were offset by downward price pressures for university tuition fees, food, alcohol and tobacco, resulting in no change to the overall rate of inflation.”

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