Shop price deflation 'worrying'

A personal finance expert has said that falls in prices of retail goods are cause for worry ’in the context’ of the goings-on in the wider economy.

David Kuo of Fool.co.uk said that such a decline suggests that the Bank of England’s quantitative easing programme is not working.

The comments come in response to the latest BRC-Nielsen Shop Price Index, carried out by the British Retail Consortium on a monthly basis.

According to the study, there was a 0.1 per cent drop in shop prices in August compared to the same period in 2008.

This is the first time since February 2007 that the index has shown deflation, prompting Mr Kuo to explain: ’When you start getting price deflation like this it’s telling me that there is too much supply and not enough demand from consumers, which is why prices fall.’

’Unfortunately, the Bank of England will probably need to review the extra £50 billion that they’ve earmarked for pumping into the economy very shortly and may have to pump in some more,’ he added.
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