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Is the retail price index fall a help or hindrance?

As we covered in one of our earlier posts, the Retail Price Index (RPI) is still in negative territory and as a consequence we will see Rail season-ticket prices fall across the UK from January 2010. While a negative RPI, which effectively means that prices are falling, is still a good thing for UK consumers it can and will cause havoc in the business arena.

In general terms it is very rare to see costs reduced in such a structured manner, and the rail network is not the only pricing structure linked to the RPI, especially when further investment may be required in an industry. As we saw with the National Express debacle, with the company forced to hand back one of its two rail franchises, pricing pressure and cost pressure is squeezing franchisees from every direction.

While on one hand direct spending by consumers will be reduced in many areas of the economy, because of a negative RPI, any shortfall and any funding requirements in for example the rail network will ultimately mean taxpayers forced to support potentially ailing business franchises. Even though many people believe that inflation is a real danger to the business environment, there is no doubt that controlled positive inflation is the "perfect scenario".

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