Deflation risk as prices to fall

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The RPI measure of UK inflation is expected to be negative - a sign of falling prices- when data is released later on Tuesday.

Economists expect the Retail Prices Index (RPI), which includes housing costs, to have declined for the first time in 49 years.

If so, it will raise fears the UK is facing a damaging bout of deflation.

The Consumer Prices Index (CPI), which is used in economic policy, is expected to show prices have risen by 2.6%.

The Office for National Statistics (ONS) is due to announce both measures at 0930 GMT on Tuesday.

If the RPI is negative it would be the first time the index has declined since March 1960. This is largely down to the fall in mortgage repayments after a succession of interest rate cuts.

The latest RPI data showed prices had increased by just 0.1% in January compared with the previous year, the ONS said last month.

The Bank of England and UK government use the index of consumer prices (CPI) to target the level of inflation they desire.

But the government uses the broader measure of RPI to set the level of state pensions, welfare benefits and index-linked government bonds.

Read full Story at                                                                                     BBC Business News