Is life becoming more affordable?

The Office of National Statistics came up with some great figures about zero inflation and maybe deflation being just around the corner. If you don’t know, deflation is a reduction of the general level of prices.
With the latest figures, a typical basket of products that cost £100 a year ago cost £100 today too – so that’s good as we understand better what we can get for our money. In the past year, however, food prices have fallen by 3.2 per cent and the cost of petrol by 13.7 per cent.
While the cost of clothing and gas prices pushed inflation down, there were also rises in petrol prices and small increases in food from February to March this year, so we are not getting negative inflation yet. We may get negative inflation (deflation) as early as April.

We’re heading in the right direction in terms of spending as the cost of living, as measured by the Consumer Prices Index (CPI), has decreased in March by a fraction on February after it dropped to – 0.01 per cent.  The cost of living is the amount of money needed to sustain a certain level of living, including basic expenses such as housing, food, transport and taxes.

In the short-term, deflation and the falling cost of living is great news for us as our  spending power is boosted. But is deflation good long term? The long-term falling of prices can be a problem for the economy, as if you are like me, you may delay purchases until you get a better price. Therefore the demand for goods and services can subsequently cause the economy to shrink.

I am not an economist, though did an A level in economics many, many years ago, so it’s interesting to try to understand all these terms. If you can add anything interesting, please do in the comments.

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