UK nar­rowly avoids fall­ing prices in March as poll nears

The China Post - - BUSINESS - BY PAN PYLAS

The UK has nar­rowly avoided a drop in con­sumer prices as the cost of fill­ing up a car rose in March — a devel­op­ment that’s likely to ease con­cerns of a de­fla­tion­ary spi­ral that can hurt the econ­omy as the UK pre­pares to head to the polls for a May na­tional elec­tion.

Of­fi­cial fig­ures Tues­day showed an­nual con­sumer price in­fla­tion in the UK was flat for the sec­ond month in March, a full 2 per­cent­age points be­low the Bank of Eng­land’s tar­get. Un­like pre­vi­ous months, the price of car fuel edged up, off­set­ting falls in heat­ing gas and cloth­ing and footwear.

Many in fi­nan­cial mar­kets were pre­dict­ing a neg­a­tive in­fla­tion rate, which would have been the first decline since records be­gan in 1989. The statis­tics of­fice es­ti­mates con­sumer prices were last neg­a­tive tem­po­rar­ily in 1960.

An ex­tended drop in prices can weigh on an econ­omy if con­sumers de­lay spend­ing, par­tic­u­larly on big-ticket items, in hopes of se­cur­ing bar­gains in the fu­ture or busi­nesses fail to in­no­vate and in­vest amid fall­ing prof­its.

But many econ­o­mists think the cur­rent low in­fla­tion is a boon to con­sumers as it’s largely due to the near 50 per­cent fall in global crude oil prices in less than a year. March’s in­crease in car fuel prices has come amid signs of sta­bi­liza- tion in the crude mar­ket. In­tense com­pe­ti­tion among re­tail­ers has also con­trib­uted to the re­cent sharp falls in the in­fla­tion rate.

“Fall­ing prices have seen money go that bit fur­ther for house­holds’ weekly shop, and many firms are ben­e­fit­ing from lower oil prices,” said Rain New­tonSmith, direc­tor of eco­nomics at busi­ness lobby group, the Con­fed­er­a­tion of Bri­tish In­dus­try.

With wage in­creases now out­strip­ping in­fla­tion, the gov­ern­ing Con­ser­va­tive Party will be hop­ing to cap­i­tal­ize on the po­ten­tial rise in living stan­dards as it cam­paigns for the coun­try’s gen­eral elec­tion on May 7. Opin­ion polls sug­gest the elec­tion is too close to call.

UK econ­omy min­is­ter, Ge­orge Os­borne, was quick to wel­come the news, say­ing on Twit­ter that the flat in­fla­tion rate was “good news for fam­ily bud­gets.” But Chris Les­lie, an eco­nomic spokesman for the Labour Party, said a “few months of fall­ing world oil prices won’t solve the deepseated prob­lems in our econ­omy or make up for years of bills ris­ing faster than wages.”

How­ever the news plays out at the bal­lot box, the prospect of very low or neg­a­tive in­fla­tion is the main rea­son why few econ­o­mists think the cen­tral bank will raise its main in­ter­est rate from the record low of 0.5 per­cent this year even though the econ­omy is grow­ing strongly — 2.8 per­cent in 2014.

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