British retail prices in March posted their first annual drop in nearly 50 years, official data showed Tuesday, stoking fears the recession-hit country now faces an additional threat from deflation.
The Office for National Statistics said the Retail Prices Index (RPI) annual inflation rate, which includes the cost of home loans, was a negative 0.4 percent in March after a flat reading in February. “For the first time since March 1960, annual inflation measured by the RPI, which includes housing costs such as mortgage interest payments and council tax, fell below zero,” the ONS said. Home-loan repayments have fallen dramatically for many property owners in recent months as banks have slashed interest rates in response to similar sharp cuts in borrowing costs by the Bank of England. The ONS added Tuesday that British 12-month CPI slowed to 2.9 percent in March owing to sliding gas, housing and transport costs. That was the lowest CPI level since March 2008 and compared with a reading of 3.2 percent in February. The CPI rate, however, still remains far above the Bank of England’s government-set target of two percent.
Tuesday’s news sparked fears of deflation in recession-hit Britain. Deflation is the term for a prolonged period of falling consumer prices. Therefore for deflation to take place, consumer prices index inflation would have to be negative for a number of months. Investec economist David Page forecast that inflation would remain weak until 2012. The Bank of England has slashed British interest rates six times since October, to a current record-low level of 0.5 percent, as it seeks to lift the country out of its first recession since 1991. Tuesday’s inflation data was published one day before the British government’s keenly-awaited annual budget outlining taxation and spending plans for the 2009/2010 financial year.
