Newspaper article The Journal (Newcastle, England)

Deflation on Cards as Store Trade Flourishes; Taking Stock

Newspaper article The Journal (Newcastle, England)

Deflation on Cards as Store Trade Flourishes; Taking Stock

Article excerpt

Byline: Iain Laing

THE impact of the consumer downturn will be shown at Next and B&Q owner Kingfisher when the pair publish full-year results this week and economists expect their fears of deflation to be confirmed with the release of official inflation figures.

It is predicted the Retail Prices Index (RPI) measure - used in most wage settlement negotiations in the UK - will have slumped into negative territory last month, having already hit a near 49-year low last January. Office for National Statistics (ONS) data out tomorrow will include both RPI and Consumer Prices Index (CPI) for February.

The statistics have so far defied the gloomy expectations of economists, who have predicted larger drops and warned that both RPI and CPI could slump into negative territory over the year ahead.

CPI - the official measure of inflation - has fallen dramatically from 5.2% last September to 3% in January as the recession tightened its grip.

But February's figures are expected to reveal a further fall as fuel prices, which plunged at the fastest pace on record in January, remained depressed.

Recently announced reductions in gas and electricity bills are also expected to pull inflation lower.

Chief UK and European economist at IHS Global Insight, Howard Archer, expects CPI will have fallen to 2.5% in February, just above the Bank of England's 2% target.

Meanwhile RPI is forecast to dip into negative territory, falling by about 0.8%. It was 0.1% higher in January.

Mr Archer said the data should show a "continuation of the recent marked downward trend", reflecting pressure on retailers to price competitively and lower oil and commodity prices. "These factors should outweigh the inflationary impact of sterling's marked depreciation," he said.

Recent minutes from the Monetary Policy Committee showed rate setters voting unanimously to create pounds 75bn in new money and slash interest rates to 0.5% as they try to keep the inflation rate above target.

Capital Economics said: "The upshot is that, after a brief commodity-driven bout of deflation later this year, there is a clear risk of a broader and more prolonged period of falling prices further ahead which could ultimately prove extremely damaging for the wider economy. …

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