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RPI moves into negative territory

The Retail Prices Index (RPI) actually fell to -0.4% in March, compared with a figure of zero growth in February. This is the first time that this figure has been negative since 1960. There was a large downward pressure on the index from housing with the main contributions being house depreciation and mortgage interest payments, both of which are excluded from the Consumer Prices Index (CPI).


In fact the CPI was 2.9% in March which was down from the 3.2% in February but still well above the government’s target figure of 2.0%.


Changes in the three major measures of UK inflation can be seen in the graphic below.

Source: ONS

Source: ONS


Why did the CPI fall? The largest downward contribution was from housing and household services and was mainly due to gas bills which fell this year. There was also a major downward contribution from food and non-alcoholic beverages with the prices of vegetables in particular, falling in price by more than they did last year. A third downward effect came from transport costs with airfares falling. Also, even though petrol rose slightly between February and March this year, it had risen even faster at the same time last year and so contributed to the downward pressure on the CPI. The biggest upward influence in prices came from the games, toys and hobbies category.


The RPIX, which includes the all items RPI but excludes mortgage interest payments, was 2.2% in March, down from 2.5% in February.


Finally, the CPI, which is taken as an internationally comparable measure of inflation, showed that the UK inflation rate was 3.2% in February whilst the figure for the EU as a whole was 1.7%.

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Posted in Deflation, Inflation

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