UK inflation is zero. Is this the real life? Or is this just fantasy?

Today is an example of what a difference a year makes as back in March 2014 the official UK annual inflation rate (CPI) was 1.6% and today there is the possibility albeit small that it will drop into negative territory. Quite a change for the inflation nation that is the UK and I will return to that subject later. We already know that inflation in the retail sector is well into the disinflation zone. From the British Retail Consortium on the 8th of this month.

Overall shop prices reported deflation for the 23rd consecutive month, accelerating to 2.1% in March, from 1.7% in February.

Food reported annual deflation of 0.9% in March from a 0.4% fall in February.

On a 12-month average basis, the Shop Price Index reported deflation of 1.7%.

So an example of “and the beat goes on” for it as we see yet another example of goods price disinflation (invariably misreported as deflation) in the UK economy. A side effect of this is the strong performance of the UK retail sector which the BRC has assessed thus overnight.

UK retail sales increased by 3.2% on a like-for-like basis from March 2014,

I discussed the way that lower prices have given quite a boost to the UK Retail Sector on the 27th of March.

What happened in March?

This morning’s data release told us this.

The Consumer Prices Index (CPI) was unchanged in the year to March 2015, that is, a 12-month rate of 0.0%, the same rate as in the year to February 2015.

Something of an economic nirvana? Well of course not for central bankers like Bank of England Governor Mark Carney who spin a line that inflation “oils” the wheels of the economy which of course really means that it helps with sovereign and bank debt problems. After all we see below that overall stability can be combined with relative price changes.

Falls in clothing and gas prices produced the largest downward contributions to change in the
inflation rate……..These were offset by a rise in the price of motor fuels and smaller upward contributions from a
variety of other products such as food.

Something Wonderful

Consumers and workers will be very pleased about this development.

In the year to March 2015, food prices fell by 3.2% and prices of motor fuels fell by 13.7%. In total, the food and motor fuels groups reduced the CPI 12-month rate by approximately 0.8 percentage points.

Happy days indeed and if we consider workers and households real financial position I am sure that this is a factor in the strong retail sales numbers as a measure of real wages in these areas would be strongly positive right now. Of course central bankers who are a genetically different variant of humanity who neither need to use energy or eat food will curse at such an inconvenient development!


Is it all now ending?

This view is based on the fact that in 2015 so far the oil price has in fact risen, albeit by only a small amount. This hides the fact that it dropped like a stone to US $45 for a barrel of Brent Crude Oil in early to mid-January and since then has ebbed and flowed its way upwards to US $58. So whilst the annual comparison still shows a strong fall (46%) we see that weekly and monthly comparisons are often rising. It is far too early to say that the fall is over but we can say that we are in a consolidation phase and whilst it continues the disinflationary boost given to the UK economy and the drop to zero inflation will sing along with Paul Simon.

Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away

This inflationary trend has been reinforced by the way that a strong US Dollar has pushed the UK Pound lower. This matters because oil and many other commodity prices are in US Dollars. Since the heady days of last summer when the UK Pound £ pushed into the US $1.70s it has gone down,down and it is currently some 6% lower in 2015 at US $1.464. Accordingly the rise in oil prices seen since mid-January has been accompanied by a falling UK Pound £ which reinforces the inflationary trend.

Petrol and Diesel Prices at the pump

The welcome falls in petrol and diesel prices at the pump stopped at the week ending the ninth of February and since then week by week the prices have risen. Accordingly a petrol price of 106.35 pence per litre has found itself replaced by one of 112.53 pence per litre for a rise of just under 6%. So the gains which began as far back as this week in 2012 when the price of a litre of petrol reached 142.17 pence appear to be over for now.

Producer Prices

These provide some back-up for today’s theme as you can see below.

Factory gate prices rose 0.2% between February and March 2015……..Total input prices rose 0.3% between February and March 2015,

Some care is needed as the annual comparison remains negative but there are as you can see signs of a turn.

The Bohemian Rhapsody Question

Is this the real life?
Is this just fantasy?
Caught in a landslide,
No escape from reality.

Here we find ourselves wondering if inflation really is this low? After all there is quite a gap now between our previous official measure of inflation and the new one.

The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs) index, is 0.9%,

I have written before that “improvements” to inflation indices always seem to involve lower numbers! Whereas when people are questioned and surveyed they give the Bank of England quite a different answer to what we are officially told. From last month.

Asked to give the current rate of inflation, respondents gave a median answer of 2.2%, compared with 2.8% in November.

Turning Japanese?

Not quite the usual coverage of the issues that but they have their doubts about inflation measurement too. Earlier this month the Bank of Japan did its own survey to find out how much people thought prices had risen over the past year and the median answer was 5%. Oops! I will let that thought settle in your mind and hope that it is more gentle than the samurai sword likely to be used on whoever was responsible for this.

What about House Prices?

The issue of asset prices is one which the UK establishment has been keen to kick as far as it can into the long grass. As evidence I present the new recently improved measure called CPIH which unlike CPI includes housing costs and the particular section which covers this.

The OOH component annual rate is 2.0%, up from 1.9% last month.

Does anybody actually believe that? You need to take the Matrix style blue pill to do so in my opinion! For those who want to know how deep the rabbit hole goes? Well the official house price data gives us a better clue.

On a seasonally adjusted basis, average house prices increased by 0.6% between January and
February 2015……UK house prices increased by 7.2% in the year to February 2015

You may note that not only are the numbers very different but the direction is too! There has been a surge in UK house prices over the past couple of years which the official consumer inflation data has missed entirely. In my opinion that is deliberate.

More awkward is the surge in equity markets where it is almost impossible to disentangle growth from inflation, but the fear is that using a marginal price (the FTSE 100 is above 7000 etc..) may not reflect the underlying position.

Services Inflation

This particular inflation dog continues to bark.

The CPI all services index annual rate is 2.4%, unchanged from last month.


Whilst consumer inflation has fallen it is a complex picture and the headlines of zero inflation are misleading. Actually the oil price fall combined with falls in the price of other commodities has given us disinflation in the price of goods which is very welcome to many. If we look beneath the surface we see that services inflation carries on in its own not very merry way. Added to this we have been the victims of rampant house price inflation badged as a wealth increase by the UK establishment singing along to Freddie Mercury and the boys.

Bismillah! No, we will not let you go. (Let him go!)
Bismillah! We will not let you go. (Let him go!)
Bismillah! We will not let you go. (Let me go!)
Will not let you go. (Let me go!)
Never, never let you go

Meanwhile the first time house buyer facing ever rising house prices may mull these lyrics.

I’m just a poor boy, nobody loves me.
He’s just a poor boy from a poor family,
Spare him his life from this monstrosity.

As to UK inflation we may see a negative print for the official CPI measure in April because last year saw a monthly rise of 0.4%, however unless the oil price falls again then it is time for Yazz to occupy the airwaves again.

The only way is up, baby
For you and me, baby
The only way is up
For you and me





6 thoughts on “UK inflation is zero. Is this the real life? Or is this just fantasy?

  1. one good stat is meaning less and less these days , the currency is debased

    I have had 5 years that amounts to 30% or more increases in food and fuels , as for housing … pfft!

    all this means that since last year these Gerrymandered figures show no increase , really , whoopee ! NOT!

    not a reversal

    not a decrease

    come on now Shaun!

    have your wages majickally gone up that 3% since last year , have they ? the top 1% are killing them selves laughing at the poor plebs and at the MSM buffoons who fantasize that they are now wealthy!



    PS: here’s the deal , inflation to stay at zero for the next 5 years whilst my income increases by 6% ,

    Yah , not going to happen , so poorer we are and soon , very soon , this oil largess will bite back , petrol went up a penny over the weekend ….. the clouds gather ……

    • Hi Forbin

      If we look back we see that the official CPI has only risen by 27.6% since 2005 when it was set at 100. What has held it back? One influence has been clothing and footwear where prices had fallen to 82.4 at the end of 2014 on the same measure. However food has outperformed if I can put it that way as it was at 143.6 and the energy component was at 154.8 so they have got relatively more expensive over the past decade. The more recent surge in tuition fees has put the education index at 228.1!

      On the same basis our old measure (RPIX) has risen by 36.3% and they say that there has been no downgrade!

  2. Our central bankers are so well paid that their food bills are insignificant. I might add that Carney is paid nearly 4 fold what the prime minister is. The prime minister is responsible for deploying the military, at potential cost of service people’s lives -> and Carney’s job seems trivial by comparison.

    • Hi ExpatnBG

      That is an interesting comparison. Ironically it has been exacerbated by the way that Mark Carney has his pension payments now in a Direct Contribution or DC form worth £144,000 a year. Whereas Prime Minister Cameron benefits from this.

      “The Parliamentary and Other Pensions Act 1972, as amended by the Ministerial and other Pensions and Salaries Act 1991, entitles current and future holders of all three offices to pensions of one half of the annual salary payable at the time they leave office.”

      Going forwards the rules have been changed, not a nice present for future PMs but nice for the taxpayer.

      Oh and the payment is worth way more than the lifetime limit for everyone else!

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