Money Matters

David Hill INLT 45-099-PSB

David Hill INLT 45-099-PSB

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Last week the UK dipped into deflation for the first time since 1960, when deflation was 0.6 per cent. This time, prices have fallen by 0.1 per cent.

This means that prices of goods and services are cheaper now than they were 12 months ago.

The fall in prices has been largely due to lower oil prices feeding through to lower plane and ferry costs, along with the timing of Easter this year.

Deflation can be good news for those who have seen their pay frozen in recent years.

In theory, cheaper goods and services will help to relieve the pain of wage freezes, and in some cases wage cuts, as austerity measures are applied.

For savers, on the other hand, deflation can mean that interest rate rises in the near term are more unlikely.

On a positive note, the value of savings in the bank will not be eroded as is the case when inflation is high.

Most commentators believe that deflation will only be temporary, especially if oil prices recover in the coming months.

RPI, the traditional measure of inflation, is still positive at 0.9% and consumers are unlikely to delay buying goods in anticipation of them being cheaper in the future.

This will mean that the potential damaging effects of deflation on an economy are not going to occur this time. Indeed the Bank of England Governor, Mark Carney, has suggested that inflation should pick up notably as the fall in energy prices drops out of the equation.

So, savers will once again still need to be on their guard that inflation could be a risk to their savings later this year.

David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email david@hillsfinancialplanning.co.uk or see www.hillsfinancialplanning.co.uk