Inflation has fallen to its lowest rate since 1960 and now stands at 0%. The inflation rate is calculated from the prices of a range of different goods and services selected to represent average spending patterns in the UK. There are two different methods of calculating inflation
The retail prices index (RPI) is intended to reflect the average spending pattern of the great majority of private households in the UK today. The RPI includes a measure of consumer goods and services, such as transportation, food, medical care and mortgage costs like interest rates. The RPI is used for calculating new wage deals and pension payments. The RPI Inflation has fallen to its lowest rate this month since March 1960 and now stands at an annual rate of 0%.
The other measure of Inflation is the Consumer Price index (CPI) which examines the weighted average of prices of a basket of consumer goods and services, like transportation, food and medical care. The CPI has unexpectedly risen and the annual rate is now 3.2%.
One of the reasons for the Consumer Price index (CPI) being high is due to the cost of imported foods and raw materials from abroad. Our currency exchange rate now makes goods and services more expensive against other countries. Two years ago you would receive $2 for £1 whereas today the exchange rate is nearing $1 for £1 so of course goods from abroad will be expensive.
The Bank of England and most economists do expect prices across the economy to fall further due to the recession and they believe that both of these measures for calculating inflation will be negative later this year. This will of course take our economy into deflation scenario for the next year or more.
Your thoughts, experiences and comments are welcome. You can join the discussion below and leave your thoughts and experiences.