You are here
British inflation falls back into negative territory
[LONDON] Britain's annual inflation rate fell back into negative territory in September, dampened by lower prices for food and petrol, official data showed Tuesday.
The 12-month Consumer Price Index (CPI) inflation rate sank to minus 0.1 per cent last month, compared with zero in August, the Office for National Statistics (ONS) said in a statement.
That matched the CPI reading from April, which was also the lowest level since March 1960. Market expectations had been for no change.
The September rate was also hit by smaller-than-expected increases in the cost of clothing.
Muted inflation means that the prospect of a hike in British interest rates - which have stood at 0.50 per cent for more than six years - is unlikely any time soon, economists said.
In reaction, the pound fell to the lowest level against the euro since May, as investors bet the Bank of England would delay hiking interest rates.
Sterling sank as low as 74.75 pence per euro, hitting a level last seen on May 7.
"UK inflation figures have come in lower than analysts expected," noted analyst Manoj Ladwa at brokerage TJM Partners in London.
"While this is likely to prevent the BoE from hiking interest rates in the near-term, it also further indicates the UK economy is struggling to grow." BoE governor Mark Carney said in August that he "wouldn't be surprised if we have another month or two of negative inflation".
However, the BoE chief has maintained that the likely timing of a rate hike is drawing closer amid growth in wages.
The central bank's main task is to keep 12-month CPI inflation close to a government-set target of 2.0 per cent.
So far this year, inflation has languished close to zero on the back of a fierce supermarket price war, while slumping global oil prices have dragged fuel costs lower.
British finance minister George Osborne stressed Tuesday that negative inflation was not the same as deflation, which refers to a prolonged period of falling prices.
"We shouldn't mistake this for damaging deflation: we remain vigilant and our system is designed to deal with such risks," Osborne said on Twitter.
While a sustained period of falling prices may sound good for consumers, deflation can trigger a vicious spiral in which households delay their purchases and businesses delay investment.
That can throttle demand, cause companies to lay off workers, and put the brakes on economic growth.