This article is from the source 'bbc' and was first published or seen on . It will not be checked again for changes.
You can find the current article at its original source at http://news.bbc.co.uk/go/rss/-/1/hi/business/7959564.stm
The article has changed 16 times. There is an RSS feed of changes available.
| Version 0 | Version 1 |
|---|---|
| Price falls spark deflation risk | |
| (about 8 hours later) | |
| One of the measures of UK inflation is expected to fall below zero - a sign of falling prices - when figures are released later. | |
| Economists expect the Retail Prices Index (RPI), which includes housing costs, to have declined for the first time in 49 years. | Economists expect the Retail Prices Index (RPI), which includes housing costs, to have declined for the first time in 49 years. |
| If so, it will raise fears the UK is facing a damaging bout of deflation. | If so, it will raise fears the UK is facing a damaging bout of deflation. |
| The Consumer Prices Index (CPI), which is used in economic policy, is expected to show prices have risen by 2.6%. | The Consumer Prices Index (CPI), which is used in economic policy, is expected to show prices have risen by 2.6%. |
| The Office for National Statistics (ONS) is due to announce both measures at 0930 GMT on Tuesday. | The Office for National Statistics (ONS) is due to announce both measures at 0930 GMT on Tuesday. |
| If the RPI is negative it would be the first time the index has declined since March 1960. This is largely down to the fall in mortgage repayments after a succession of interest rate cuts. | If the RPI is negative it would be the first time the index has declined since March 1960. This is largely down to the fall in mortgage repayments after a succession of interest rate cuts. |
| The latest RPI data showed prices had increased by just 0.1% in January compared with the previous year, the ONS said last month. | The latest RPI data showed prices had increased by just 0.1% in January compared with the previous year, the ONS said last month. |
| The Bank of England and UK government use the index of consumer prices (CPI) to target the level of inflation they desire. | The Bank of England and UK government use the index of consumer prices (CPI) to target the level of inflation they desire. |
| But the government uses the broader measure of RPI to set the level of state pensions, welfare benefits and index-linked government bonds. | But the government uses the broader measure of RPI to set the level of state pensions, welfare benefits and index-linked government bonds. |
| Deflation explained | Deflation explained |
| If the RPI measure of inflation is negative it will raise the prospect of deflation - regarded as a sustained period of falling prices. | If the RPI measure of inflation is negative it will raise the prospect of deflation - regarded as a sustained period of falling prices. |
| INFLATION Your personal rate of inflation depends on how you spend your money and may not match the official rate of inflation. Use the BBC's calculator to get a much more accurate picture of how inflation affects you Personal inflation calculatorChanges to inflation basketQ&A: How inflation is calculated | INFLATION Your personal rate of inflation depends on how you spend your money and may not match the official rate of inflation. Use the BBC's calculator to get a much more accurate picture of how inflation affects you Personal inflation calculatorChanges to inflation basketQ&A: How inflation is calculated |
| Deflation is generally considered undesirable because people may stop spending as they wait for prices to go down further. This leads to a deflationary spiral, where prices and demand continue to fall and economic growth contracts. | Deflation is generally considered undesirable because people may stop spending as they wait for prices to go down further. This leads to a deflationary spiral, where prices and demand continue to fall and economic growth contracts. |
| This happened in Japan in the Nineties, when it experienced what it now known as its "lost decade". | This happened in Japan in the Nineties, when it experienced what it now known as its "lost decade". |
| There is also the concern of the cost of mortgage payments staying the same while other prices fall, effectively leading to an increased debt burden. | There is also the concern of the cost of mortgage payments staying the same while other prices fall, effectively leading to an increased debt burden. |
| Economists surveyed by the UK Treasury expect retail prices to be falling by an annual rate of 1.9% by the end of the year. | Economists surveyed by the UK Treasury expect retail prices to be falling by an annual rate of 1.9% by the end of the year. |
| The Bank of England said this month that periods of deflation would be "short-lived" if decisive action was taken using "more unconventional" monetary policy tools, such as so-called quantitative easing. | The Bank of England said this month that periods of deflation would be "short-lived" if decisive action was taken using "more unconventional" monetary policy tools, such as so-called quantitative easing. |
| The Bank has slashed interest rates and has effectively increased the amount of money in the economy by £75bn in a bid to boost economic activity, which can cause prices to rise. | The Bank has slashed interest rates and has effectively increased the amount of money in the economy by £75bn in a bid to boost economic activity, which can cause prices to rise. |
| RPI-linked | RPI-linked |
| Many annuities - a regular income from a retiree's pension pot - are also based on the yields made from government bonds or are linked directly to retail prices. | Many annuities - a regular income from a retiree's pension pot - are also based on the yields made from government bonds or are linked directly to retail prices. |
| Regulated train fares, which account for 40% of all tickets sold, are also pegged to retail prices, with fares capped at 1% above retail price inflation, but the train companies are now arguing that formula was never designed for a period of deflation. | Regulated train fares, which account for 40% of all tickets sold, are also pegged to retail prices, with fares capped at 1% above retail price inflation, but the train companies are now arguing that formula was never designed for a period of deflation. |
| Regulated fares include season tickets and off-peak fares. Public sector unions also often refer to the RPI measure of inflation during wage negotiations. | Regulated fares include season tickets and off-peak fares. Public sector unions also often refer to the RPI measure of inflation during wage negotiations. |
| These inflation figures will be the first using new items in the 650-strong basket of goods, which is updated every year. | These inflation figures will be the first using new items in the 650-strong basket of goods, which is updated every year. |
| The ONS announced on Monday that it has included such products as rotisserie chicken and rose wine, an indicator of the UK's changing spending habits. | The ONS announced on Monday that it has included such products as rotisserie chicken and rose wine, an indicator of the UK's changing spending habits. |
Have you noticed prices falling? Would lower prices hurt you or help you? You can send us your experiences using the form below: | |
| In some cases a selection of your comments will be published, displaying your name and location unless you state otherwise in the box below. | |