‘The economy has entered deflation,’ announces the BBC news presenter, as if this was a kind of recession. Au contraire. Shopping bills are shrinking, and this is unalloyed good news. The cost of living has been a problem in recent years, but now petrol prices are plunging and the cost of goods (i.e., shopping) is now 2.1 per cent lower than a year ago. The cost of services is up by 2.4 per cent, so technically that means zero inflation – contra the BBC headline. But the overall point holds: stuff is getting cheaper.
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The prices of clothing is down month-on-month for the first time since the CPI inflation index was invented. Food, fuel bills, booze: all were cheaper in March than in February, according to the ONS. And cheaper than a year ago.
Yes, the pointy-heads will say that there is a theoretical risk that this good deflation means people stop spending, and wait for a better deal.
But in reality? People don’t wait to fill their fridge. What’s more, TV prices have been falling for years, and everyone keeps buying TVs. And the recent consumer spending figures show that Britain is shopping happily. Rather than create fear, the period of falling prices is coaxing us into the high street. Together with record employment, it’s not a bad basis on which to fight an election.
UPDATE And here’s some inflation forecasts from Citi (pdf)
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