U.K. Inflation Drops


The U.K. inflation rate dropped to the lowest level in a year last month as the recession blunted price pressures across the economy.

Consumer prices rose 2.9 percent from a year earlier, compared with 3.2 percent in February, the Office for National Statistics said today in London. The retail price index annual gauge dropped for the first time since 1960.

Energy costs have dropped, and Tesco Plc, Europe’s second-largest retailer, today reported the slowest profit growth in 15 years as price cutting by rivals eroded its U.K. market share.

Inflation slowed as household gas bills fell and the cost of heating oil dropped, the statistics office said. Prices for food and non-alcoholic drinks also declined, led by vegetables, fruit, bread and cereals.

The U.K. central bank forecasts that inflation will slow to 0.3 percent in 2011, below the 2 percent target. U.K. producer prices increased in March at the slowest annual pace in 20 months as raw material costs dropped.

Bank of England Governor Mervyn King last month said in a letter explaining why inflation had breached the government’s upper 3 percent limit that a sharp decline” in the rate is likely to resume, though it may remain volatile” because of the weakness of the pound, which makes imports more expensive.

The retail price index measure of inflation, which is used in wage bargaining as a gauge of the cost of living, showed a 0.4 percent annual price drop in March. That was the first decline in almost half a century. Excluding mortgage interest payments, it rose 2.2 percent from a year earlier, the least in three years.


TradingEconomics.com, Bloomberg
4/21/2009 5:24:52 AM