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Zero inflation will boost living standards for Northern Ireland households, say experts

By Amanda Ferguson

Published 15/07/2015

Angela McGowan, chief economist at Danske Bank
Angela McGowan, chief economist at Danske Bank

A fall in the rate of inflation back to zero - pushed down by supermarket price wars and summer sales - is "likely to improve living standards" for households across Northern Ireland, it's been claimed.

The rate of UK Consumer Prices Index inflation fell to 0% in June, according to the latest report from the Office of National Statistics.

Inflation slipped back to zero last month amid a round of womenswear summer sales and as a run of falling food prices reached its longest stretch for 15 years.

The Consumer Price Index (CPI) measure of inflation slipped back from 0.1% in May, in line with City expectations.

The CPI has been hovering around zero since February, providing an extra boost to households as wage increases accelerate.

The Bank of England expects CPI - which fell below zero in April for the first time in more than 50 years - to turn higher later this year as the effect of falling oil and food prices fades.

Danske Bank chief economist Angela McGowan said while households enjoy the benefits of static prices and rising real incomes, the Bank of England will continue to be a little worried at the rate of inflation sitting at such low levels.

"The Bank aims for inflation stability at 2% and expectations have been for inflation to start rising in the second half of this year," she said.

"However, the recent Iranian deal leaves the door open for a hefty increase in oil supplies which would bring about a further downward drag on energy costs in the months ahead.

"Getting inflation up to the target level could prove more difficult than expected and could potentially make the Bank of England delay any plans for an interest rate rise."

Ms McGowan also said the Monetary Policy Committee at the Bank will be carefully watching earnings data as well as core inflation in the months ahead.

"Core inflation strips out external influences such as energy and food prices to give a better indicator of domestic demand-led inflation," she added.

Economist John Simpson said it is a much better complaint to have no inflation than inflation rising and eating into living standards.

"A low level of inflation is likely to help us improve living standards as earnings now begin to catch up and get ahead of inflation," he said.

"For Northern Ireland, changes in inflation have also got to be compared with what is happening to exchange rates.

"At the moment, the rate of sterling has been a bit too strong.

"Unfortunately, the stronger sterling works against our exports so that in terms of the real benefit for the economy, we wouldn't want inflation to stay as low for too long."

Mr Simpson added: "Before the end of this year we can also expect inflation to rise again, so this is just a temporary problem."

Belfast Telegraph

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