"Rather than being a concern, the drop in inflation is a boon to the economy, providing households with greater spending power at a time when pay growth remains frustratingly weak."
- Markit
For the first time since data collection on UK inflation began around three decades ago, the main gauge for measuring consumer prices in this country fell as low as zero in February of this year. Numbers, released by the Office for National Statistics, were published worse than expected for both core and headline readings. The average market expectation stood at a 0.1% increase in prices, year-on-year, and should have followed a 0.3% advance in consumer prices during the first month of the year. At the same time, on a monthly basis inflation returned to positive, by picking up 0.3% after a 0.9% retreat seen a month ago. According to the ONS, the biggest part of a decline came from food and non-alcoholic drinks which became 3.3% cheaper during past 12 months. A slight negative effect was provided by gasoline prices; however, their overall impact used to be softer than a couple of months ago, helped by sustained oil prices in February.
At the same time, the Bank of England Governor Mark Carney predicts the CPI reading will most likely fall below zero threshold in coming months, even though the change is mainly driven by temporary factors, such as crude oil prices. Inflation should start growing back to the target mark of 2% in the middle of this year, the time when oil prices started dropping in July 2014. As a result, there is going to be softer pressure on the monetary policy regulator to review its stance in the near term.
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