Deflation or inflation?


As reported in the FT, the Retail Price Index (RPI) slowed to -0.4 per cent during the month, after remaining flat during February, the Office of National Statistics reported last week. The ‘D’ word is on the lips of many commentators, while those with student loans have the sparkling wine chilled, with the prospect that the taxpayer will be helping to pay off their most liberal of educations.

However, the RPI is only one side of story, as the Consumer Price Index (CPI) is still at 2.9%. Even more disturbing for those that work outside of the bubble of the public sector, the London Chamber of Commerce and Industry has calculated the Business Price Index (BPI), which shows that annual inflation for businesses stood at 6.1% throughout the UK in the forth quarter of 2008. The reason? Apparently: “BPI inflation has continued to rise because even though labour costs are muted, the costs of capital are increasing sharply as a result of the credit crunch."

The battle of minds between those fearing deflation against those predicting inflation continues. It will be interesting to see who is proved right and why. One thing that is beyond debate is that given the fact that businesses are facing a tough time, raising National Insurance contributions by 0.5% from April 2011 is not a good idea; yet that is exactly what this government s going to do.