Headline news at the moment is that inflation is negative for the first time since 1960

It’s useful to put this into context – it is the case that inflation is negative but only because of the way the calculation works. Inflation used to be calculated by using the Retail Price Index (RPI) which includes housing costs. The calculation assesses a ‘basket’ of goods on a year on year basis.  At present we use the Consumer Price Index which doesn’t include housing but does include the price of oil which is down, which impacts air fares in the ‘basket’ too, and so the net result is a negative figure.

Ultimately all the comparisons to inflation of years ago just don’t matter. We use a different measure now, so headline news stating that inflation is at its lowest ever is somewhat erroneous; it simply isn’t if you use the same measure employed back in 1960.

So although inflation is low, it is all in the maths.  Yet as long as the general public don’t defer purchases with the idea that prices will drop further, it really makes no difference. Ultimately we live in a consumer led economy where the public don’t expect that inflation will be negative.

This entry was posted on Monday, 1st June 2015 at 2:55 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed.

Tags: 2015, Financial, uk