Looks like companies have gone for cost cutting rather than price cutting as the primary strategy for retaining or growing profits. The assumption here must be that if sales start to increase then staff can be rehired to deal with growth. Previous downturns have seen retail prices come under pressure first.

Inflation surprises with jump to 3.2%
By Daniel Pimlott, Economics Reporter

Published: March 24 2009 10:13 | Last updated: March 24 2009 22:01

Fears Britain might enter a deflationary spiral receded on Tuesday after inflation rose in defiance of expectations last month.

As the sharp fall in the value of the pound fed through in the form of higher prices for shoppers, the consumer price index increased from 3 per cent in January to 3.2 per cent in the year to February, confounding economists’ forecasts of a further fall to 2.6 per cent. Inflation has fallen from a peak of 5.2 per cent in September.

The rise in inflation forced Mervyn King, the governor of the Bank of England, to write to Alistair Darling, the chancellor, to explain why prices were still rising more than one percentage point above the Bank’s 2 per cent target.

The data appear embarrassing for the Bank. It has cut interest rates to the lowest level in its 315-year history and begun an unprecedented programme to create money and to buy assets.

But Mr King said the rise in inflation reflected retailers’ decisions to pass on the fall in sterling to consumers – although he was optimistic about the medium-term implications. “Even if we see significant pass-through of the depreciation of sterling, it may mean inflation is close to the target rather than below it. I don’t see a large risk of inflation being significantly above it,” the governor told the Treasury committee on Tuesday.

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