Cucumbers cause inflation chaos

The surprising announcement that inflation has actually gone up despite worsening economic pressures has caused a bit of confusion among financial experts.

While everyone expected the economy to be on the brink of deflation (see our blog below), it turns out the consumer price index (CPI), which takes into account the cost of everyday items such as food and utilities, went from 3% to 3.2% last month.

The increase has been blamed on various factors including the weak pound, the price of imported goods and even, erm, the rising cost of Spanish cucumbers – but it looks as if business owners are going to have to hold off on the celebrations.

“These surprisingly strong inflation figures postpone but do not remove the risk of deflation in 2009,” warned David Kern, chief economist at the British Chambers of Commerce (BCC). “While the figures may partly be due to sterling’s weakness, they may also indicate productive potential in the economy is falling and there is less spare capacity to exert downward pressure on prices.”

The news that the retail price index (RPI) has dipped to zero also provoked an uncharacteristic outburst of humour from Krishnan Guru-Murthy, the usually sober Channel 4 News presenter, on Twitter earlier today. “If RPI is at zero, that is neither inflation nor deflation,” he mused. “Is it flation?”

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