Inflation hits a record low of 0%, prompting worries over falling prices

George Osborne might have hailed the latest record-low inflation figures as being good for consumers, but fears are mounting over the longer-term effects.

The consumer prices index (CPI) fell to 0% last month – the lowest figure since records began – and the chancellor was keen to emphasise the positive effects on people’s wallets.

The CBI said it was unlikely that prices would continue to fall for long, partly because the pressure from lower oil prices is dissipating.

But some analysts are more worried.

“Consumers may be revelling in cheaper prices, but for economists this is a code-red moment,” said David Lamb, of foreign exchange specialists Fexco.

“While there is no surprise at the fall in inflation, both the speed and the scale of the drop are alarming. We are in an oasis on the edge of an abyss.

“[Bank of England governor] Mark Carney has breezily predicted that though inflation would turn negative in spring, Britain would escape a deflationary spiral. But with inflation in freefall, that assessment is now looking dangerously optimistic.

“It now seems certain that Britain will fall into deflation in March. This is unknown territory, and we should expect policymakers to take drastic action to prevent deflation taking root.”

One group of people who might be happy with the rock-bottom inflation figure is savers, who’ve been hammered over the past six or seven years.

Sylvia Waycot, of Moneyfacts, said: “The fall in inflation is good news for savers. They will find that the savings interest they are paid will now have more spending power, so they will feel as though it is going further.”

There is a sting in the tail, however – with inflation so low and deflation a real possibility, it is unlikely that we’ll see a rise in the Bank of England base rate any time soon. That means it’s going to remain hard to find savings accounts paying anything like they were before the financial crash in 2008-09.

According to Moneyfacts, the top-paying easy-access account at the moment comes from Kent Reliance. But with a rate of 1.50%, you would need a balance of £66,667 to earn £1,000 interest a year.