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Inflation hits zero for the first time in half a century

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Guy Anker
Guy Anker
Deputy Editor & Head of Operations
24 March 2009

The cost of living froze in February compared to the same period last year, as one of the key measures of inflation fell to zero for the first time in 49 years.

The Retail Prices Index (RPI), which includes housing costs, fell from 0.1% in January to 0% in February.

In contrast, the Consumer Prices Index (CPI), which does not include housing costs, climbed from 3% in January to 3.2% in February.

The main reason for the difference is that the RPI Index takes into account the dramatic fall in mortgage costs for many following months of Bank of England base rate drops.

The CPI figure is still well above the Government target of 2%.

Economists believe we are on course for deflation - where the cost of living falls. Ben Read, from the Centre for Economics and Business Research, says: "The broader economic picture means that annual inflation is still likely to fall sharply over the coming months."

Martin Lewis, founder of MoneySavingExpert.com, says: "If a few months down the line we move into full-on deflation, it means low interest rates actually aren't so bad. Someone with £10,000 in savings earning 1% interest, when deflation is 2%, would have £10,080 after tax in the bank in a year. But shopping trollies worth £10,000 would now only cost £9,800, meaning they’re 3% better off."

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