Why Has Inflation Been so Low Since 1999?

Abstract

In this paper, Stephen Nickell, member of the Bank's Monetary Policy Committee (MPC), explains why CPI goods prices have been falling in the United Kingdom since mid-1999. From 1999 to early 2001, the main factor was a squeeze on margins in the distribution sector. Since then, falling import prices have played a key role along with strong distribution sector productivity growth. Looking forward, while the latter should continue to play a role, import prices may well start to rise. This is consistent with CPI inflation moving up to the 2% target over the next two years.