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Business

Inflation turns negative for first time in fifty years

Latest update : 2009-04-21

Britain's Retail Prices Index (RPI) inflation rate fell in March by 0.4%. For the first time since March 1960 annual inflation, including house prices, fell bellow zero, according to the Office for National Statistics.

AFP - Britain's annual retail price inflation rate fell 0.4 percent in March, turning negative for the first time in nearly 50 years due to falling home loan payments, official data showed Tuesday.

The Retail Prices Index (RPI) inflation rate, which includes the cost of home loans, sank last month after a flat reading in February, the Office for National Statistics revealed in a statement.

"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.

The Bank of England has slashed British interest rates six times since October, to the current record-low of 0.5 percent, as it seeks to lift the country out of recession.

"The most eye catching data saw headline retail prices fall 0.4 percent year-on-year in March, thereby moving into negative territory for the first time in 49 years as it was dragged down by sharply reduced mortgage interest rates," IHS Global Insight economist Howard Archer noted.

Meanwhile, British 12-month consumer price inflation slowed to 2.9 percent in March owing to sliding domestic 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 largest downward effect on the CPI came from housing and household services. This was mainly due to a fall in gas bills while they were unchanged a year ago," the ONS added.

Tuesday's news sparked fears of deflation -- or a prolonged period of falling prices -- could be adding to the problems of recession-hit Britain.

"The ongoing relative stickiness of consumer price inflation suggests that it is unlikely to turn sharply negative later this year although a brief period of mild deflation is still possible," Archer said.

"However, the year-on-year decline in retail prices will undoubtedly deepen significantly further as lower mortgage rates impact."

Tuesday's inflation data was published one day before the British government was due to deliver its annual budget outlining taxation and spending plans for the 2009/2010 financial year.

Date created : 2009-04-21