Inflation Hits 0% As Food Costs Fall Further

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Falling food prices meant the annual rate of UK inflation stood in uncharted territory of 0% in February, boosting family budgets.

The Office for National Statistics (ONS) said its headline CPI measure of inflation eased from 0.3% in January to 0% in February year-on-year.

The figure sets a new record low for CPI since comparable records began in 1989 though the ONS added that inflation may have been lower in 1960 at -0.6%, based on unofficial estimates.

The ONS said consumer prices, measured under prices for a core basket of goods, were unchanged from a year earlier as lower food and computer goods prices outweighed upward pressures.

Food and non-alcoholic beverage prices saw a record year-on-year drop of 3.3% amid the supermarket price war.

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Gallery: Last Time Inflation Was As Low

A loaf of bread, which could finally be bought sliced, would have set you back 4.5p

You could spread your money thinly with a pound of butter just 22p

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Fancy a pint? 8p, please!

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Or if you preferred something lighter, 250g of tea would have cost 16.5p

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And if you took sugar, 1kg wouldn't be more than 6.5p

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Falling prices have also been locked in because of the drop of up to 60% in world oil costs.

Economists expect inflation to fall further in the coming months as cuts to energy bills are felt.

The static cost of living, on an annual basis, has arrived at a time when wages are rising by 1.8% year-on-year.

It is a welcome relief for consumers following six years of inflation outpacing salaries.

The Bank of England, while welcoming weak inflation as a benefit to the UK economy, is keeping a close eye on the measure for fear that negative prices it has forecast in the coming months could become entrenched in the medium term.

Deflation has a tendency to delay purchases by consumers and businesses on hopes the cost of goods and services will be cheaper in future.

The Bank believes record employment and rising wage levels will help maintain consumer spending.

The surprise scale of February's fall is likely to push back the expected timing of an interest rate rise, currently pencilled in by markets for 2016 and putting downward pressure on the pound.

Bank rate has been held at 0.5% for six years but the bank's chief economist Andy Haldane has suggested that the next move was as likely to be a cut as a hike because of lower inflation.

Low inflation is welcome for the Chancellor George Osborne ahead of May's General Election.

He tweeted: "Inflation at zero is a first for the British economy.

"Low inflation due to falling oil prices is good news for family budgets.

"Prices are frozen and, as the recovery from Labour's Great Recession strengthens, their economic argument has literally come to nought".

TUC general secretary Frances O'Grady warned: "Zero inflation is a reminder of how fragile the economy remains.

"Stagnating prices are not a sound foundation for the strong and sustained pay rises that workers have waited so long for.

"With deflation on the horizon, the Chancellor's plans for extreme cuts after the election look more and more like a suicide note for the UK economy".

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