[Closed] good deflation

but the economy is in safe hands!

to be fair hes proibably still not come down from the election after party, I reckon it came to him after a big line of charlie from between a call girls breasts

How does all this tally with house prices going up?

anagallis_arvensis - Member
How does all this tally with house prices going up?

That's what he likes to called a strong economy.

only the truly grumpy lefty would whinge about convenience good deflation.

‘Conventional wisdom is that deflation is a bad thing which leads to a negative economic spiral as households stop making purchases in anticipation of future price falls. But this hardly applies when the main driver of deflation, as would be the case in the UK, is falling essentials prices; households won’t stop purchasing food because prices might be lower in a month’s time, and similarly if you need petrol for your morning commute you aren’t going to postpone filling up your car. With this kind of “good deflation” lower essential costs free up household spending power and boost demand for more discretionary goods and services.’

The truth is that if housing has inflation then how do we have deflation?

Oh 👿 because if the gov't included housing costs into the inflation calculation (as they did through the 60's, 70's and into the 80's)
then those troublesome workers/tax payers would demand higher pay rises and then profits would tumble.

How does all this tally with house prices going up?

Surely though I would spend my money on something other than petrol and deflation wouldnt occur as demand for coke and hookers has gone up. The reakity is we are just spending it on housing which isnt included in inflation figures.

That was directed at stonor by the way

So you're hacked off that fuel and food prices are falling ?

If households save the spare money or pay down debt with it, then there will be a corresponding loss to GDP, so it's not all rosy. However, it looks like just a dip and we'll be back to weak inflation again next quarter, so hardly worth worrying about.

No I'm dismayed a chancellor would think deflation is a good thing or more that the population believe him

I'd wager that 'most' households wont save the spare money or pay down debt and spunk the cash on sky TV and stella.

/middle class rant

Hang on, I thought Tory economic policies had led to a cost of living crisis?

And Labour supporters wonder why they lost...

[quote=anagallis_arvensis said]No I'm dismayed a chancellor would think deflation is a good thing or more that the population believe him

The economists quoted on the BBC News site seem to think it's good.

Ian Stewart, chief economist at Deloitte, said the fall was "likely to prove short-lived and positive for growth".

"Falling prices raise consumer spending power and help keep interest rates low. This looks like the mild and benign variety of deflation, which is good news for consumers and for growth," he said.

Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former member of the Bank of England's Monetary Policy Committee, said he did not expect the fall in prices to be sustained.
"Once the impact of the big drop in oil prices drops out of the annual inflation rate, it will move back up to 1-2% over the next year or so. With wage inflation picking up, we may soon be considering the prospect of above-target inflation," he said.
"In the meantime, flat or slightly falling consumer prices are good for growth, boosting real consumer spending power. So a temporary period of slightly negative inflation can be good for the UK economy."

Not sure where you live but fuel has gone up 2p in the last fortnight.

What wage increase, frozen for 3 years and 1% this year.

"Falling prices raise consumer spending power and help keep interest rates low. This looks like the mild and benign variety of deflation, which is good news for consumers and for growth," he said.

The latest news on the Oil front is that price per barrel is rising due to IS and general [url= http://uk.reuters.com/video/2015/05/18/mideast-turmoil-troubles-oil-prices?videoId=364262839&videoChannel=78 ]Middle East turmoil[/url]

So no wages rises, then as soon as the negotiations are over inflation again.
Of course none of this helps the debt to GDP ratio.

[quote=Pigface said]Not sure where you live but fuel has gone up 2p in the last fortnight.

That should please the OP as the next set of inflation figures will probably go back to positive numbers 😉

it's May, the start of wage negotiations at a number of large organisations, a small dip into deflation means that the organisations can argue for no pay increases.

But it will the good kind of 'no pay increases', rather then the bad type under Labour.

Not sure where you live but fuel has gone up 2p in the last fortnight.

No I'm dismayed a chancellor would think deflation is a good thing or more that the population believe him

If there is one thing that I've learned it is that there is very little that is good or bad in economics. Whether it is inflation, deflation, monopolies, or a perfect market nothing is black and white it's all a bit grey and more complicated that most people would like.

If there is one thing that I've learned it is that there is very little that is good or bad in economics. Whether it is inflation, deflation, monopolies, or a perfect market nothing is black and white it's all a bit grey and more complicated that most people would like.

Be off with you, your nuanced opinions have no place here on STW.

Very true gonefishing.

If there is one thing that I've learned it is that there is very little that is good or bad in economics. Whether it is inflation, deflation, monopolies, or a perfect market nothing is black and white it's all a bit grey and more complicated that most people would like.

And that politicians don't understand any of it..

I'm sure they do, they just don't care. Everything, good or bad, is just spun to agree with their pre-conceived ideology.

footflaps - Member

I'm sure they do, they just don't care. Everything, good or bad, is just spun to agree with their pre-conceived ideology.

To be fair, complex or nuanced messages don't play well with their audience either. It's not right that they default to simple buzzwords etc but I can see why it's appealing.

DaRC_L - Member

Hmmmm can I put the cynical POV...
it's May, the start of wage negotiations at a number of large organisations, a small dip into deflation means that the organisations can argue for no pay increases.
The latest news on the Oil front is that price per barrel is rising due to IS and general Middle East turmoil

So no wages rises, then as soon as the negotiations are over inflation again.
Of course none of this helps the debt to GDP ratio.

This...

/cynic

AA it an average of a basket of goods - some have gone up in price (education, restaurants, housing, booze and fags) others have gone down (scoff, non-booze, transport, recreation etc). Net, net the basket of goods that cost £10 last year now costs £9.90 - go make a headline!!

Given the 12% decrease in fuel prices included in this calculation not too hard to guess how permanent the negative figure will be.

Education is in it?!?

Well it's a fairly low weighted item but yes, evening classes, university fees, as well as private school fees are all included.

Just because you don't spend money on an item doesn't mean it shouldn't be included. I don't spend a lot on hairdressing, leg waxing and slimming clubs but that doesn't mean they shouldn't be included.

I'm not his biggest fan, but he might be onto something - the two major drivers are fuel prices, which are being artificially driven down by Saudi / OPEC to piss off Russia and attempt to kill off new competitors by making exploration uneconomic and Food which is being driven down party because of fuel prices and party because the supermarkets are cutting each others throats to gain customers.

You never know, it might even, just maybe be caused by consumers learning the lessons of the last 5 years and not running headlong into spending thousands of stuff they don't need on 0% deals and credit cards, but I doubt it.

But if the economy were doing well demand for other goods would pick up the slack surely?

Just because you don't spend money on an item doesn't mean it shouldn't be included. I don't spend a lot on hairdressing, leg waxing and slimming clubs

I'm sure more people spend money on leg waxing than send kids to private schools. Its what less than 10% of children. Hardly your average basket.

I'm sure more people spend money on leg waxing than send kids to private schools. Its what less than 10% of children. Hardly your average basket.

I'm sure you are correct but then given that the total education section has a weighting of 2.6% and the Misc goods and services (the one with the leg waxing etc) has a weighting of 9.1%, it's almost as if the people who generate these numbers take that sort of thing into account...

Well if they dont include most peoples biggest purchase and monthly spend its almost as if they are not entirely trustworthy!

mrchrispy - Member
I'd wager that 'most' households wont save the spare money or pay down debt and spunk the cash on sky TV and stella.

You forgot cheese. And those mini M&S cheeseburgers, yum to top up the Ocado delivery. I might even be able to stretch to a new 520d, business edition no less. And we can start having After Eigts every Sunday, not just at Christmas.

Sorry what was the problem again?

Well AA, you can go and advise them on a more representative basket. But for the moment that's how it works. Not sure how much of Gavs fake tan makes it into the mix but a good job education does.

Does it not strike you as odd that housing costs arent included? Strikes me as the reason we have deflation. Any extra cash is spent on that I'd wagr

Not really, housing costs are included in RPI which as you may expect is currently (ie today) 1 percentage point or 100 basis points higher than CPI which excludes housing costs. This gap,is termed the "wedge" in official releases.

Before we get on to trustworthiness and those nasty Tories etc, you should note that we use the EU harmonised version of CPI, so this is not unique to the UK. In fact the UK also publishes CPIH which includes a housing element, but now we are complicating things.

I wasnt referring to Tories. Labour are just as bad imo (with most things but this too).
Dress it up however you like inflation being so low for so long isnt a good sign. Todays drop below 0 means nowt in real terms when compared to having had very low inflation for a long time.

I wasnt referring to Tories. Labour are just as bad imo (with most things but this too).

I was joking. Actually nothing to do with either - as I said it's an EU designed measure.

Dress it up however you like inflation being so low for so long isnt a good sign.

Depends on who you are. For some it's a godsend. As others have said above, if on the other hand that you want to deflate your way out of debt, then it's not a good story.

Todays drop below 0 means nowt in real terms

Boom, tish....

On balance probably good news today though.

If deflation is a good thing as some suggest then it begs the question why the Bank of England target is 2% inflation ?

The Bank of England target is not 1% inflation, or -0.1% inflation, but 2%.

The Bank of England is more than 1% off target.

Someone needs to do some explaining if the Bank of England target is not what is best for the UK economy.

And perhaps the Bank of England target now needs to be changed ?

It's the responsibility of the BoE Governor to explain the difference and he has done clearly today.

Deflation is not a good thing. A temporary negative inflation can be for some but not others.

The inflation target of 2% is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). The remit is not to achieve the lowest possible inflation rate. Inflation below the target of 2% is judged to be just as bad as inflation above the target. The inflation target is therefore symmetrical.

If the target is missed by more than 1 percentage point on either side – i.e. if the annual rate of CPI inflation is more than 3% or less than 1% – the Governor of the Bank must write an open letter to the Chancellor explaining the reasons why inflation has increased or fallen to such an extent and what the Bank proposes to do to ensure inflation comes back to the target.

Source: BOE

Inflation below the target of 2% is judged to be just as bad as inflation above the target.

If the target is missed by more than 1 percentage point on either side – i.e. if the annual rate of CPI inflation is more than 3% or less than 1% – the Governor of the Bank must write an open letter to the Chancellor explaining the reasons why inflation has increased or fallen to such an extent and what the Bank proposes to do to ensure inflation comes back to the target.

The Bank of England Governor can't be a very happy bunny then.

Has he written the letter explaining why things went wrong ? No school boy excuses I hope......"the dog ate my homework" won't do from Bank of England Governor.

Well Newsnight currently has some sensible thoughts on the matter.

The Gov was relaxed and so he should be - nearly all down to external factors, so an easy letter to write and read.

But if wages rise as productivity remains under downward pressure, margins get squeezed and prices will probably rise leading to inflation returning (albeit mildly at the moment)

The real issue is what this means for the UK's output gap and why we are below trend growth. But politicians are hiding from that's debate. Much harder to make into a snappy soundbite.

.....leading to inflation returning

Well that thought must be a huge relief to the Bank of England Governor, no wonder he looked relaxed Newsnight.

[i]"nearly all down to external factors"[/i] ah yes, I should have guessed.

So it turns out that deflation isn't all that it's cracked out to be after all.

I hope all those who were getting ready to pop their corks and start celebrating aren't too disappointed.

Sensible people can see it for what it is. Enough said.

[quote=DaRC_L ]Hmmmm can I put the cynical POV...
it's May, the start of wage negotiations at a number of large organisations, a small dip into deflation means that the organisations can argue for no pay increases.
The latest news on the Oil front is that price per barrel is rising due to IS and general Middle East turmoil
So no wages rises, then as soon as the negotiations are over inflation again.

So big pay rises next year, when the drop in oil price has fallen out, and the rise in oil price has been included (doubtless the BoE Governor will have to write another letter). You do realise that it's not possible to continuously have low inflation in May and higher inflation the rest of the year?

[quote=gonefishin ]If there is one thing that I've learned it is that there is very little that is good or bad in economics. Whether it is inflation, deflation, monopolies, or a perfect market nothing is black and white it's all a bit grey and more complicated that most people would like.

...and somebody somewhere will be making a killing

Before we get on to trustworthiness and those nasty Tories etc, you should note that we use the EU harmonised version of CPI, so this is not unique to the UK

What you're basically saying is we should blame Europe 😉

history is being rewritten as we speak apparently the "lost 20 years" due to stagflation in Japan are now a myth

try this to paper over some cracks

[url] http://www.oecd.org/eu/escaping-the-stagnation-trap-policy-options-for-the-euro-area-and-japan.pdf [/url]

These most recent fears about Inflation and Deflation, to my mind illustrate a lot of what's wrong with economic thinking in the UK and the West in general at the moment - we've just about emerged for a deep, dark global 'Great Recession' and we're still looking for "normality" - the BOE wants 2% inflation a year, the correct amount of national debt, the correct amount of consumer debt and the 'correct' value of a huge amount of other indicators for the 'correct' economy.

My issues it that more often than not the BOE and the Government will attempt to artificially influence these markets to get to the correct values - which makes turns indicators into goals and renders them useless, but more important that that is the fact that history shows us that the 'correct' economy is unsustainable and attempting to rebuild the old one from the position we're in now (over valued property) will only mean another 'great recession' will arrive within a few years.

The BOE and Government (all sides) only seems interested in fixing the symptoms and not the root cause again.

We need to release a chunk of green belt, have a massive high density house / flat building program over 20 years in the SE which will eventually correct house prices by upping supply to meet demand. Then we might be able to finally move on from the absurd situation of having a domestic housing debt fuelled economy.