Rate of CPI inflation in the UK has dropped to 0.3 per cent
The price of goods in the UK rose by just 0.3 per cent in the year to January 2015 – the lowest level on record since the Office for National Statistics (ONS) began recording data in 1996.
The fall in the inflation rate, as measured by the consumer price index (CPI), is down from 0.5 per cent in December, which was the lowest it has been since May 2000.
Concerns have grown about the possibility of deflation and the long-term implications of low inflation.
Kevin Doran, chief investment officer at Brown Shipley, said, “While CPI and retail price index (RPI) figures report lows of 0.3 per cent and 1.1 per cent for January, there is growing divergence between real world inflation and asset price inflation, as seen by bubbles in the UK housing and government bond market.
“Importantly, asset price inflation always leads to real world inflation, so I wouldn’t be surprised to see official figures rise to between 5 per cent and 7 per cent in the next few years. Therefore, investors should consider investing in real assets that are likely to rise with inflation in order to preserve their purchasing power.”
Interest rates will likely stay low in line with inflation. Mark Carney, governor of the Bank of England, previously stated that interest rates would not rise as long as the rate of inflation remains low. Carney also predicted that low inflation would be good for the UK economy as a whole, claiming there were not any signs of bad deflation deterring purchases as a result in persistent falls in prices.
Core inflation, which excludes food, energy, alcohol and tobacco prices, was recorded at 1.4 per cent in January. CPI inflation tends to experience greater instability than core inflation, which has varied between 0.9 per cent and 3.7 per cent over the past ten years, while CPI inflation has drifted between 0.3 per cent and 5.2 per cent.
