Oil price crash drags inflation down to 1.5%

Even before the recent capitulation, the price of oil was on the slide in March and this dragged inflation down slightly from February’s 1.7% to 1.5%. Oil prices have a massive impact on the UK’s inflation rate and with prices at the pump and home energy costs getting cheaper we’d expect this trend to continue for the next couple of months.

What’s more, with retailers having to shut their doors we’re seeing more and more offer discounts to shoppers to move their buying online. In particular clothing and department stores have been hit, as people don’t need new outfits to sit on their sofa all day and are delaying large purchases amid worries about where the economy is headed. One area of slight upward pressure was from alcohol and tobacco, partly because we’re drinking at home more and partly because tobacco duty increased in March following the Budget.

Savers will welcome the news of a drop in inflation, as they have been pummelled with two further falls in the Bank of England base rate this year and a multitude of cuts to interest rates on savings accounts. However, it remains the case that no easy-access savings account meets the level of inflation, but savers who are willing to lock their money up for a year can at least keep pace with inflation.

The ONS also faces a challenge to accurately record inflation during the current crisis. Not only is it harder to get hold of pricing information with so many retailers closed, but the way we shop and what we’re buying has vastly changed, meaning the inclusion of items such as holidays, travel and eating out in the ‘inflation basket’ no longer represents what we’re actually spending our money on. How much this matters depends on how long the crisis lasts and whether our spending habits are dramatically altered for the remainder of the year – or beyond.

These articles are for information purposes only and are not a personal recommendation or advice.