TUC: Deflation threat is the mark of a failed economic plan

15 April 2015

CPI (Consumer Price Index) inflation is at zero percent for the second month in a row. But what does it mean?

This CPI rate is the lowest since estimates began in the 1980s.

Cheaper clothing and footwear partly explain the low the rate, which is offset by a rise in the cost of petrol.

While this will be spun as an effective pay rise for workers, with falling consumer prices causing a rise in living standards, but core inflation – when volatile products are taken out of the calculations – still stands at over one percent.

Oil prices are in general largely responsible for the record inflation. According to The Office for National Statistics (ONS), CPI has been driven by energy prices (motor fuels) falling 16.6% in the past year to February. Food prices, another sizeable imported commodity, fell by 3.4%.

ONS have points out that is the rate of inflation was calculated to two decimal places, it stands at 0.01%.

Even if the rate had been negative, it wouldn’t have been classed as deflation, as deflation is characterised by general and consistent falling prices. However the general direction is causing concern that the UK might find itself in a position of long-term deflation, similar to that of Japan.

TUC General Secretary Frances O’Grady said:

“Zero inflation is a mark of the weak condition the economy has been left in by a failed economic plan.

“Stagnating prices are not a sound foundation for the strong and sustained pay rises that workers have been waiting years for.

“With the threat of deflation set to continue, the Conservatives’ plans for extreme cuts after the election look more and more like a suicide note for the UK economy.”

A strong economy must come off the back of strong wages, not falling pay and deteriorating conditions. Collective bargaining is proven to lift economies out of depression, creating economic resilience, while reducing income inequality and improving quality of life. Read the IER’s publication

To find out more about collective bargaining, the IER’s Reconstruction After the Crisis: A Manifesto for Collective Bargaining is available for purchase.