In February in the UK, the inflation rate fell to 0% from 0.3% the month before. Lower costs for food and computer goods are responsible for the decline. February’s rate is the lowest seen since the Consumer Price Index estimates began in 1988. “It looks likely the rate will drop below zero at some point in the coming months, and hover around zero for most of the year,” predicted senior economist Ben Brettell at Hargreaves Lansdown.
Many economists predict that the drop in the inflation rate will have positive effects on the UK’s economy as long as it does not presist in the long term. “Together with higher earnings, lower inflation is boosting people’s spending power, and will contribute to economic growth in the year ahead,” said British Chambers of Commerce David Kern.
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People may also see their money being more dear in the short-term and choose to save, but many factors go into people’s spending decisions
I agree with Oiliver. While lower inflation may increase the real purchasing power, it encourages people to save more. I wonder what promoted Mr. Kern to make such a statement. Equally curious to me is whether the 0% inflation will be a short-term phenomenon as these economists hope.
See an earlier post and associated comments on this very topic. Will 0% price rises get people to hold off on going to the doctor or replacing that worn-out ex-student-days sofa? Remember, most of what we consume are services, and while some can be postponed, most can’t. The amount of deflation is also very low in absolute terms.
I agree with Oliver and HeeJu there are many factors that go into spending. Yes, the economic theory would encourage those in the UK would to spend especially on housing and what can be deemed as more expensive goods compared to when the inflation rate rises. However, not necessarily understanding where the economy is going encourages people to save for unforeseen circumstances.
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