Signs of easing in deflation concerns

Jun 12 2009 by Peter McCusker, The Journal

DEFLATION fears have showed signs of easing after data showed a rise in inflation expectations in the year ahead for the first time since last August.

People said they thought inflation for the coming year would stand at 2.4%, according to the latest Bank of England/GfK NOP Inflation Attitudes Survey conducted in May.

The result marks a rise from 2.1% in February and ends a recent sharp downward trend, which saw inflation expectations plunge from a record high of 4.4% last August.

Economic woes have hit firms’ pricing powers and dragged energy and fuel bills lower, leading to concerns of a deflationary spiral in the UK.

The actual rate of official Consumer Prices Index (CPI) inflation stood at 2.3% in April, down from 2.9% in March.

This was still above the Government’s 2% target, but CPI has fallen significantly since the recession took hold.

And Retail Prices Index (RPI) inflation is currently in negative territory.

But yesterday’s survey data offered hope the UK would avoid a sustained period of deflation, according to economists.

The results also helped the pound strengthen, to $1.64 and 1.17.