U.K. inflation unexpectedly turned negative for the first time since 1960 on falling food and transport costs, official data showed Tuesday. Factory gate prices continued its downward trend reflecting lower crude prices.
Data from the Office for National Statistics showed that consumer prices fell 0.1 percent in April from last year, while it was forecast to remain flat as seen in March.
This was the first annual fall since the official series started in 1996. Based on the comparable estimates, it was the first drop since 1960.
The mild deflation has boosted purchasing power of consumers, generating better prospects for consumer spending. The decline in April was largely caused by the timing of the Easter this year. Economists widely see deflation to be short-lived.
IHS Global Insight Economist Howard Archer said he suspects that UK could well exit deflation as soon as May, and inflation is likely to hover around zero before starting to trend up gradually from the third quarter.
Provided that the recovery in the oil price does not gather pace, inflation should remain comfortably below the 2 percent target over the next couple of years, ensuring that households' spending power continues to strengthen and enabling the central bank to raise interest rates at an extremely gradual pace, Samuel Tombs, a senior UK economist at Capital Economics, said.
Month-on-month, consumer prices rose 0.2 percent, the same rate of increase as seen in March. Monthly inflation was expected to double to 0.4 percent.
Core inflation eased to a 14-year low of 0.8 percent from 1 percent in March. Economists had forecast it to remain at 1 percent.
Costs of food and non-alcoholic beverages and transport dropped 2.8 percent each in April. Clothing and footwear prices were down 0.4 percent.
Another report from the ONS showed that factory gate prices continued its downward trend for the tenth consecutive month, with petroleum and crude oil being the main drivers.
Output prices dropped 1.7 percent for the third straight month in April. Prices were expected to fall by 1.6 percent. Month-on-month, output prices edged up 0.1 percent as reported in March.
The annual decline in input prices slowed to 11.7 percent from 12.8 percent in March. This was the weakest decrease so far this year but the pace of decline exceeded the expected drop of 11.5 percent.
On a monthly basis, input prices gained 0.4 percent once again.
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