Tuesday, April 21, 2009

Deflationary Cycle: UK Edition

ITV reports:

The headline rate of inflation, which includes mortgage payments, has fallen below zero for the first time in 50 years.

RPI stood at 0.4 per cent last month - down from zero in February - showing the cost of living is actually getting cheaper.

But negative RPI should not necessarily be welcomed. The figure is often used as a benchmark to set wage, state pension and other benefit increases.

That last sentence is striking. According to Save Borrow Spend:
Millions of public sector workers could find their incomes on hold if the UK enters a period of deflation. Council workers, nurses and teachers could all see their pay cheques stand still because public sector pay is tied to the RPI.
Let the deflationary cycle begin.

Source: Statistics.Gov.UK