The sharper than predicted drop overshot the 0.1% experts predicted. The rate of Retail Prices Index (RPI) inflation also fell to 1% from 1.1%.
But far from being a problem, Berenberg Bank economist Rob Wood said solid growth and rapidly falling unemployment means there is little danger of good price falls turning into dangerous deflation.
“The UK can sit back and enjoy the purchasing power boost that low inflation today is bringing without fearing any of the sillier claims of what ‘deflation’ might bring, like households delaying purchases on the expectation that prices will be even lower tomorrow,” said Wood.
He added inflation probably has further to fall before it rises again.
“We look for inflation to run below consensus through 2016. In the very short-term, gas price cuts from three companies – British Gas, Scottish Power and SSE – are yet to feed through to the inflation figures, and the volatile rise in air-fares in February will probably unwind in the coming months,” he said.
Wood said, if anything the risk to its inflation predictions of 0.3% for 2015 and 1.5% for 2016 could be underplayed if anything.
This raises the risk that the BoE could delays rate hikes even further and Berenberg expects the first to come in February 2016.
