Inflation rate drops to record low as oil prices plummet

As The Office for National Statistics reports the latest inflation figures, Helal Miah, investment research analyst at The Share Centre, explains what it means for investors.

“With the recent drop in oil prices it was inevitable that the UK inflation rate would be dragged down. However, this morning’s CPI release showed that the price fall consumers experienced was more than expected. There was zero inflation between November and December, while the annual inflation dropped from 1% to 0.5%. As a result Mark Carney will be prompted to write an open letter to the Chancellor to explain the deviation from the 2% target.

“With the supermarket price war intensifying, plans for energy utilities to set lower bills and the oil price continuing to fall, we believe there is scope for further falls and perhaps the possibility of deflation.  Prior to this announcement, the first interest rate hike was expected in the third quarter of 2015. However, this should now be delayed and there may even be a possibility of no hike at all this year.

“Sterling has weakened moderately against other major currencies as a result of this morning’s announcement. While the prospect of deflation is worrying and partially reflects the relatively weak global economy, our view is this should only prove temporary. Delays to the interest rate rise is good for stocks and we believe that equities remain the asset class of choice.”