Fraser Nelson Fraser Nelson

What cost of living crisis? CPI inflation falls to zero for first time on record

So much for Ed Miliband’s ‘cost of living crisis’. UK inflation, as measured by the CPI index, has just fallen to zero (pdf). Even this figure masks better news: food prices are actually falling, by 3.4 per cent over the last 12 months. The cost of motor fuel is down by 17 per cent, mainly thanks to collapsing oil prices.

Crucially the price of such essentials should keep falling – as the below forecast from Citi (pdf) shows:-

Screen Shot 2015-03-24 at 09.49.01

Now, should we worry about ‘deflation’? There are some economists who say this is a real problem because if things get cheaper than punters put off purchases. There is zero evidence of this happening in the UK. Indeed, according to Citi (pdf)

…the opposite is the case, with falling prices spurring increases in confidence and purchases. For example, the February consumer confidence survey showed that the share of people who believe it is now a good time to make major purchases rose in February to the highest since 2007, while the figure for expectations of major purchases in the coming 12 months next year rose to the highest since 2003.

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