Inflation Below One Per Cent In 2009
It may seem unlikely now as inflation has just reached 4.4%, but leading economists are forecasting inflation of one per cent in 2009. This is because the current figures are influenced by rising oil prices, but next year they will be replaced by the now falling price of oil.
It may not seem likely now, but some economists are saying that inflation could dip below one per cent in 2009.
With inflation figures for July just announced at 4.4%, and almost everyone feeling nothing but doom and gloom over the economy, the forecast for low inflation will seem rather like an April fool joke.
However, the forecast is genuine, despite the latest news that recession seems to be just around the corner for Britain. One of the main reasons that inflation might get down below one per cent is that the impact of rising oil prices that we are feeling so badly at the moment will be replaced by the figures of falling oil prices that we are seeing now, but are not yet impacting the actual inflation figure.
To demonstrate, if the price of something was £1 in August 2007, but is £1.20 now, then annual inflation is 20% for that item. However, if in August 2009 the price of that item is £1.21, then the annual inflation rate is only 0.83%. The fluctuation in oil prices could have the same effect.
Leading analyst Tim Congdon makes this prediction, and says that the next move for interest rates should be down as, he says, there is still without doubt a corporate liquidity squeeze. The Bank’s Inflation Report agreed, saying that cash held by private non-financial businesses was now on an annual decline. Congdon argues that the economy needs a boost and that interest rates can have little or no impact on inflation, which, as he says, should come down next year anyway.
Congdon was one economist who warned two years ago that the Bank of England needed to take stronger measures against the threat of inflation, with too much money in the economy, and he warned last year that inflation would rise steeply this year – just as it has done.
