Inflation level could turn negative
Figures are expected to reveal the measure of inflation used in wage negotiations turned negative last month for the first time since 1960.
Economists are predicting that Retail Prices Index (RPI) inflation - key for private sector wage deals and pension payments - will have plunged from 0.1% in January to minus 0.7% in February.
This would not only be the first negative reading since March 1960, but also the lowest since a record minus 0.8% was seen in June 1959.
The official measure of inflation - the Consumer Prices Index (CPI) - is also expected to have fallen, plunging further towards the Government's 2% target as the recession hits pricing and demand.
Experts are pencilling in 2.6% for CPI in February, down from 3% the previous month.
The Office for National Statistics figures will stoke fears over a period of deflation in the UK, which can be damaging for the economy as it discourages spending and can lead to a vicious circle of lower prices and demand.
While the UK is not seeing deflation yet in the official measure, negative RPI will have serious implications for the UK, not least because of its role in wage settlements.
It is also used as the basis for annual rises in state pension payouts and other benefits, as well as annuity payments for private pensions, plus rates for index-linked savers among others. RPI has been dragged down more than CPI because it also includes mortgage payments and housing costs.
David Page, economist at Investec, forecasts RPI to remain negative for the majority of the year, although he said this does not necessarily mean wage cuts.
"We'll likely see average earnings start to slow and come down, although firms will find it hard to push through wage rises at a lower level than 1% or 2%, he said.
-Nova
