Britain’s inflation rate hits zero for first time on record

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Tuesday, March 24, 2015 03:45 PM / THE GLOBE AND MAIL

British inflation fell to zero last month, official figures showed on Tuesday, as lower prices for food and computer goods left consumer prices unchanged from a year earlier for the first time on record.

Consumer price inflation dropped to 0.0 percent in February from an annual rate of 0.3 percent in January, the Office for National Statistics said.

This is a level not seen since comparable records started in 1989, though the ONS calculates inflation might have been lower in 1960 based on unofficial estimates.

The fall in inflation is slightly more than economists’ forecasts of a fall to 0.1 percent.

The unchanged cost of living will be welcome news for many Britons in the run-up to a national election on May 7, especially as annual wage growth slipped to 1.8 percent at the start of the year.

But the further inflation falls below the Bank of England’s 2 percent target, the more speculation there is likely to be about whether low price growth risks getting entrenched.

Last week the BoE’s chief economist said the central bank was as likely to need to cut rates as to raise them in the immediate future, though for now that view appears not to be shared by other policymakers.

BoE Governor Mark Carney told legislators earlier this month that cutting rates purely in response to falling oil prices would be “extremely foolish”, and most economists polled by Reuters expect the next BoE move to be a rate rise in around a year’s time.

Unlike in the euro zone, where prices are already showing year-on-year falls, most economists think British consumer demand will remain firm in the face of falling prices, due to robust employment growth and signs of a pick-up in wages.

Tuesday’s data showed downward pressure on inflation from falling prices for food, laptops, tablets and computer peripherals.

Economists expect inflation to fall further, and the BoE predicts it will fall below zero in the next few months. Cuts in utility bills from companies such as British Gas are among the factors likely to push down on prices in March.

An underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, fell to 1.2 percent in February compared with 1.4 percent in January.

Data also released by the ONS on Tuesday showed that factory gate prices fell by 1.8 percent in annual terms, similar to economists’ predictions of a 1.9 percent fall.

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