Deflation fears as RPI goes negative

The Retail Price Index (RPI) has entered negative territory for the first time since 1960, official figures have shown.

According to the Office for National Statistics, the inflation benchmark dropped from zero in February to -0.4 per cent in March.

Meanwhile, the Consumer Price Index, a benchmark which does not include property prices, fell from 3.2 to 2.9 per cent.

The negative trend will worry the government and the Bank of England, as falling prices tend to be damaging to economies as a whole.

Deflation has the capacity to greatly prolong economic downturns, with large purchases being delayed in the hope that the purchaser can get the goods for cheaper later.

The phenomenon of ’debt deflation’ - where borrowers in a deflationary environment struggle to repay money owed during times of higher prices - also proves damaging to both businesses’ and consumers’ balance sheets.

Speaking to the Times newspaper, Colin Ellis, European economist at Daiwa Securities, said that he predicted the downwards trend to continue.

’The record minimum for RPI since 1948 is -0.8 per cent in June 1959,’ he commented.

’It is only a matter of time before RPI sets a new record low on that front.’ADNFCR-2318-ID-19133494-ADNFCR