Inflation drops to 0%, as Cebr claims 'noflation' has left us all £500 better off

Banking and Borrowing

Updated on 15 September 2015 | 0 Comments

Official figures show cost of living hasn’t changed year on year.

The Office for National Statistics (ONS) has revealed that the Consumer Prices Index (CPI) measurement of inflation dropped to 0% in August.

The figure, which shows how the cost of essentials have changed over a year, was down from July’s rate of 0.1%.

The ONS said a smaller rise in clothing prices during the month, compared to a year ago, was the main contributor to the fall.

Drops in the price of motor fuels, sea fares and food costs also played a part, with oil prices hitting a six and a half year low of around $42.50 per barrel in August. 

However, rising prices for soft drinks as well as furniture and furnishings partially offset that fall.

What it means for your money

Inflation has been virtually flat for a while now thanks to a combination of falling commodity prices and intense competition in the retail sector.

This period of 'noflation' means that the cost of living in general hasn’t really changed compared to a year ago.

In fact, according to the Centre for Economics and Business Research (Cebr), 'noflation' has boosted average earnings by a whopping £500, as the falling price of essentials has come at the same time as rapid wage growth.

It pointed out that inflation averaged 1.5% in 2014, and estimated that it will average just 0.3% this year. However, if CPI had hit the Bank of England’s 2% target in each of these years, inflation-adjusted earnings for the average worker would be a massive £560 less.

The Cebr argued that containing the cost of living is a great way to drive up standards and boost economic growth, providing the risk of deflation – where the inflation figure drops below 0% for an extended period – is properly managed.

What do you think? Do you feel better off than a year ago? Let us know your thoughts in the comments box below.

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