This email was sent to Money Box subscribers on 24 April 2009

Dear listener,

The big story of the week has been the Budget of course – squeeze me hard Darling – and that almost overshadowed the historic and much anticipated moment when annual inflation went negative. In other words the total price for the standard basket of goods and services which is used to work out the Retail Prices Index (RPI) was lower in March than it had been in March 2008. Negative inflation – also called deflation – last happened in March 1960 (hands up if you remember that – I was at grammar school and My Old Man's a Dustman by Lonnie Donegan was at Number 1).

The index that did show a fall of 0.4% is the Retail Prices Index – the RPI. It has been around since 1947 and has been calculated backwards to 1750 by the Office for National Statistics (and a similar price index has been calculated by the boffins at the Bank of England right back to 1290 when a groat a week was a living wage). Deflation – or at least price stability – was common throughout most of the 19th century. In fact prices were the same in 1913 as they were 80 years earlier in 1833.

The other measure of inflation, which the government prefers, is the Consumer Prices Index (CPI). It showed an increase of 2.9% in March compared with a year ago. It excludes some things that are in the RPI – particularly housing costs – and includes financial services which the RPI omits. The arithmetic is also done slightly differently so the two indices are usually out of step.

One of the problems of price indexes is that they only reflect the overall cost of a particular basket of goods and services. If you spend your money on other things then your rate of inflation may well not be negative. Last time I spoke about prices falling a listener e-mailed me to say "Don't you go shopping? The prices I'm paying are certainly not falling!"

The Institute for Fiscal Studies has worked out that the lower your income and the older you are (the two are not unrelated of course) the higher your rate of inflation. In February 2009 prices were already falling for the richest third of the population. But were rising well above official inflation rates for the poorest third.

That is because food prices were up 10.3% in March, domestic power costs were up 17.9% and public transport fares up 6%. If you spend your money on those things then deflation is still a long way away.

But on Saturday it is back to the Budget...

*** ON MONEY BOX THIS SATURDAY ***

Car scrappage scheme – how will the £2,000 discount really work? Pensions – is the end of higher rate tax relief for the very rich the thin end of an unpleasant wedge? Ditto the 50% tax rate at £150,000 and the end of the personal allowance for those with incomes above £113,000? And soaking the rich may be attractive to the rest of us but was there much for low income households?

Also – how should financial companies treat people who are mentally frail or vulnerable? Is there a dilemma between giving them the freedom to conduct their own affairs and the dangers of them making very bad choices?

And why oh why oh why are credit card costs and charges going up and up and up when interest rates are going down and down and down?

So don't miss Money Box on Saturday at noon (and repeated on Sunday at 9pm if you do). Never miss a show by subscribing to our podcast on our website bbc.co.uk/moneybox where you can also listen online, Have Your Say, watch videos, and find out more about all the items on the programme.

Best wishes,

Paul

PS Don't forget the programme taster on BBC Breakfast between quarter to nine and nine o'clock. If you miss it, you can watch it on our website.


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