Responding to the latest inflation figures released this morning (19 May), which showed the UK entered a period of deflation, with the CPI index running at -0.1%, James Sproule, Chief Economist at the Institute of Directors said:
“The slip into deflation should not worry us, as it is primarily caused by a drop in the cost of energy, which is good news for households and businesses. Falling prices in necessities, such as food and transport, along with a period of sustained job creation and wage growth mean demand and consumption will remain buoyant.
“Deflation can be a chronic problem where it represents a lack of consumer confidence and an unwillingness to spend. This danger is very real in some parts of southern Europe, but is not even a distant threat in the UK. While deflation does cause the cost of debt to rise in real terms, the benefits to the wider economy of a period of falling prices far outweigh any downsides.”