Shropshire Star

Star comment: Make the most of lower inflation

Inflation is at its lowest level since records began. It is presently hovering at less than half a percent and is likely to remain below one per cent for some time.

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The reason for its exceptionally low rate is simple: the quantum fall in global oil prices has brought down the cost of living. The cost of doing business has fallen steeply as goods have become cheaper to move around. Low pump prices mean residents are making hay, as they enjoy considerable savings from smaller transport and fuel bills.

A more sophisticated examination of the figures reveals that oil prices are not the only contributing factor. Once fuel and food costs are stripped out of the statistics, inflation remains at a low rate of around 1.4 per cent. The pound is strong against both the dollar and the Euro, which means we enjoy lower prices around the globe.

As the election looms large, politicians are claiming credit for the low inflation rate with Chancellor George Osborne hailing it as a milestone for the British economy. The unions, however, see things differently. They are concerned that the higher value of the pound means it will be harder to export goods. They are also concerned that low wages have contributed to the figure.

The fact remains, however, that consumers have additional spending power. That may lead to a healthier economy as we spend our way out of trouble. Interest rates could also be cut further, which will provide help to those trying to get on the housing ladder.

However, it is important that the Government acts to prevent deflation. If the economy gets into a position where there is a downward run on costs, consumers and firms will put off spending in the belief that things will be even cheaper in months to come.

While the falling price of oil has undoubtedly played a dominant role, one thing is certain: it won't stay low forever. The American shale boom that has caused a depression in prices will eventually be replaced by rising costs.

Already, prices at the fuel pumps are creeping up: a penny is added here, another penny added there. Consumers should make the most of things while they last. Low inflation won't be here forever. Businesses must be astute in their strategic planning to make sure they are not adversely affected when both inflation and interest rates rise. For both will surely happen.

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