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Roundup: Britain sees deflation in April as transport costs drop

Xinhua, May 19, 2015 Adjust font size:

Britain's Consumer Prices Index (CPI) fell by 0.1 percent in the year to April 2015, it is the first time that CPI has fallen over the year since official records began in 1996 and the first time since 1960 based on comparable historic estimates, data showed on Tuesday.

But experts here believe that the deflation phenomenon would be temporary as the oil price has rebounded recently.

BELOW EXPECTATION

In the previous two months, British CPI saw no changes. And analysts expected a zero percent growth of CPI in April before the release of data.

The largest downward contribution came from transport services, with the timing of Easter this year a likely factor, said the Office for National Statistics (ONS).

The core annual inflation rate, which excludes alcohol, tobacco, food and energy prices, rose 0.8 percent year-on-year, data showed.

Compared to the previous month, however, British CPI increased by 0.2 percent, figures showed.

CPIH, an inflation gauge include consumer prices and owner occupier's housing costs, increased 0.2 percent in the 12-month to April 2015, down from 0.3 percent in March 2015, data also showed.

TEMPORARY EFFECT

Experts here expect that the deflation would be short-lived.

Mark Taylor, Dean of Warwick Business School, said in a note: "This kind of deflation is not bad for the economy because it's coming from the supply side - weak energy and food prices - rather than any fundamental weakness in the demand side or consumer spending."

He said: "It's also expected to be temporary as the oil price has rebounded and commodity prices have stabilized. Deflation is only bad for the economy when prices are expected to continue to fall and people postpone consumption, which weakens demand and leads to further falling prices, in a vicious downward spiral."

Samuel Tombs, Senior UK Economist at Capital Economics, said in an analysis piece that the deflation is likely to last for "one month only," which means the CPI would return to positive territory in May.

Nonetheless, "the pound's recent appreciation and the scope for productivity to recover suggests that it could still be another couple of years before CPI inflation returns to the 2 percent target," he added. Endit