Farewell inflation?

Depending on the metric you chose, the UK is currently experiencing rising inflation, or absolutely no inflation. Today the Retail Prices Index (RPI) fell to zero. This index measures the price of popular goods as well as mortgage payments and energy costs. The last time this index flat-lined was March 1960, 49 years ago. Economists predict the RPI will fall up to 4% over the next year, remaining in negative territory for the longest period in more than a century.

Apparently the last time the nation experienced sustained deflation was in the Victorian era. During this period the development of mass production technology and a new national transportation infrastructure (canals and railways) progressively lowered the cost of goods. The Times newspaper says that wholesale prices fell 50% between 1870 and 1896, while the British economy grew a steady 4% annually.

Surprisingly, the more narrowly defined Consumer Price Index (CPI) increased today. Everyone predicted this index, measuring a basket of commonly purchased goods and services, would fall in line with the RPI. However, the rising price of imported fruit and vegetables drove the index up from 3% to an annual rate of 3.2%. Despite this news there is a sense that most prices are falling. I've certainly noticed the change. The price of bread is down, as is cheese, gas, petrol, air travel and clothing. It's a good time to shop if you have the cash.

It’s also an odd time to living in the UK with so many history making metrics in the headlines. Last week unemployment officially rose above two million for the first time since 1997. Many economists predict it will peak above three million next year, representing more than 10% of the workforce. Currently, one in five companies are estimated to have imposed a wage freeze. Add to this the lowest interest rates ever set by the Bank of England and there's no question we’re witnessing economic history in the making.

NOTE:
On March 30 Spain reported its first ever bout of deflation as the annual inflation rate came in at negative 0.1%.