Headed for a fall

Following a long period of stable inflation, the UK economy experienced a spike in price increases before heading south, leaving insurers and pension funds facing the prospect of deflation. Does this pose a threat to balance sheet stability or are other risks still paramount? Aaron Woolner reports

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UK consumer price inflation (CPI) woke from its slumber in September last year when it hit 5.2% - over two and half times the 2% average demanded by the Treasury. This was in marked contrast to the previous five years when it was 0.8% off-target at most. But as soon as inflation spiked, the spectre of deflation appeared on the horizon - just as it did in Japan in the early Nineties, following the bursting of the country's asset bubble.

And while CPI - the measure used by the Treasury to

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