19 May 2015

Guy Foster, Head of Research at Brewin Dolphin

CPI fell over a the year to April which marks a historic experience of deflation. The risk of a deflationary spiral is low given that consumers are already experiencing rising prices at the petrol pump.

The weakness in core inflation might make people question the underlying strength of demand but many categories of core inflation (which relates to discretionary spending) have been weak for many years. This spending tends to be in frequent and includes durable goods where quality improvements have led to persistently deflationary trends for many years. In general consumers tend to focus more on those non-discretionary spending costs more than discretionary costs making it difficult for price deflation to become entrenched. What matters more from an inflationary perspective is spending power and soo any weakness in wages would be more worrying.

Overall underlying demand remains very much in goldilocks territory (not too hot, not too cold). There is nothing in this release which will alarm investors or policy-makers and the pace of inflation will pick up from here.

-ENDS-

The value of investments can fall and you may get back less than you invested.

Past performance is not a guide to future performance.

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us. The above information is for illustrative purposes only and is not intended as investment advice

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd.

For further information please contact the Brewin Dolphin Press Office on 020 3201 3330

distributed by