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Retail Price index turns negative

The Retail Price Index (RPI) has turned negative for the first time in 50 years as the UK recession is laid bare for all to see. The RPI, which is officially a measure of inflation, fell to -0.4% from 0% last month and could impact on short-term wage deals yet to be agreed across the UK. Many employers use the RPI as the benchmark for employee wage agreements and while no wages will be cut there will obviously be limited scope for any upside in the short to medium term.

The RPI fell to its all-time low of -0.8% in 1948 and many financial experts expect the current RPI to fall further and set a new record low in the short to medium term. Whether this has any significant impact upon the expected and hoped for recovery in the UK economy remains to be seen but it will at the very least cause something of a drag on recovery.

It will be interesting to see how Gordon Brown responds to the negative RPI and in particular how he takes on the unions representing the public service sector workers. There has been significant friction between the government and the unions over the last few months with inflation busting wage deals demanded by public sector workers across the UK. If Gordon Brown gives in to these demands it will set a precedent for employers across the UK and could see a mushrooming of strikes and similar actions.

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