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Deflation

(20 Posts)
TheMummalo Tue 19-May-15 10:08:45

UK in deflation as prices fall 0.1% in the year to April

What will deflation mean for the UK?

Isitmebut Tue 19-May-15 11:26:37

If the deflation remains mild and relatively short lived, it means good news for the UK.

If deepens and becomes entrenched, it usually means that there are structural problems within an economy.

Economic recessions preceded by a severe financial recession often results in deflation, and we had the deepest and longest of both, for well over 80-years.

TheMummalo Tue 19-May-15 11:43:32

but but but...
Call me Dave said everything was going swimmingly!

Isitmebut Tue 19-May-15 12:19:16

...and lower prices (with slowly rising salaries) providing the first decent 'real term growth in wages since 2008, is going badly?????

Isitmebut Tue 19-May-15 12:21:59

Compare that to the first decade of this century, when the UK had the highest Base Rate and inflation in the industrialized world, now THAT could be called 'tanking' with the fishes.

Isitmebut Tue 19-May-15 12:24:07

Swap G7 countries with "industrialized world" above, to be more accurate and cover my wobbly ass.

ReallyTired Tue 19-May-15 12:26:34

The problem with deflation is when it comes entrenched. Ie. someone waits for six months before buying a car in the hope that the price will fall. The car company goes out of business with lack of orders and lots of people lose their jobs. When this happens across lots of sectors it results in lots of people losing their jobs. The unemployed people live a very basic lifestyle which results in more companies going under. The country enters the doldrums as more and more people become economically inactive. Long term deflation means that the recession has entered a new level of vicousness.

Unfortunately when this happened 80 years ago only all out war with Germany got us out of deflation.

Isitmebut Tue 19-May-15 12:35:13

ReallyTired .... I'm guessing that your a kinda 'glass half empty' type of a person. lol

The first UK 'deflation' month in 55-years, I wouldn't start a war with Germany just yet, the EU, maybe.

Japan is the far better example after their financial crash around 1980; after a huge financial bubble bursting, retail/commercial properties fell 70 to 90%, the Nikkei stock market index fell from around 49,000 to around 9,000 - and inflation became mild deflation for what become 'the lost decade', but lasted over 20 odd years - but few could say Japan has been an economic basket case since 1980.

specialsubject Tue 19-May-15 13:23:51

like hell is inflation now negative.

oil and petrol are cheaper than last year which is the big driver. Train fares have gone up - the trip I do went up 8% in January. I think London fares have also gone up. Air fares have dropped due to the insane reduction in passenger duty, so all those people changing planes at Heathrow and thus polluting the skies are paying less for the privilege while injecting NOTHING into our economy.

as most of you will notice, prices of essentials are not falling. Unless you eat ipads and flat screen TVs.

I don't often scream 'lies, damn lies' in our privileged democracy, but this one definitely is.

Isitmebut Tue 19-May-15 13:46:16

The "negative" is one tenth of one per cent from zero/flat last month.

The component breakdown is there for all to see. and relative to the previous year, which might have been higher e.g. train fares.

No UK supermarket war versus the Germans where you are then?

Inflation across the G7 are of a similar 'flat' level, so fairly consistent.

But have a good scream, it does us all good from time to time.

Isitmebut Tue 19-May-15 14:10:31

I began to doubt my inflation "similar 'flat' level" claim to other countries so checked my memory - and here is the proof in pictures.
www.cityam.com/216019/uk-deflation-33-charts-showing-how-uk-inflation-compares-every-inflation-rate-every-eu

specialsubject Tue 19-May-15 14:38:24

Of course I shop in Aldi and prices there go up and down, as you would expect - I think they are a bit seasonal in the fruit and veg bit, as they should be. The prices in the other supermarkets nearby also vary, and there's a lot of sneaky price rises (smaller packs, temporary price drops followed by bigger rises). This applies to all the supermarkets, and believe me I shop around.

electricity unit prices and standing charges have gone up - my tariff ended and there was nothing as cheap. Can't comment on gas, don't have it.

probably booze, toilet cleaner fizzy drinks and other stuff I don't buy has dropped.

repeat; train fares last year were LOWER. So they have gone up.

petrol is indeed cheaper and so is heating oil. Perhaps beepy-beepy toys are cheaper too - but I don't buy those.

boring old facts, eh? BTW I saw the contents of the 'basket' and the relative weightings. Haven't done all the sums but it is not hard to see what is affecting this faked figure.

ReallyTired Tue 19-May-15 14:38:27

I think people have suffered Japan. Japan is doing OK, but they certainly aren't the super start emerging economy they once were. Part of Japan's problems is not deflation, but a complete refusal to allow immigration and a dropping birth rate.

Mild deflation is hardly noticable. The problem with significant inflation is that your mortgage increases in size in real terms.

Isitmebut Tue 19-May-15 15:02:21

specialsubject .... I think you are beginning to realize that todays inflation figure, isn't personalized to your consumption.

Indeed you are really unlucky on several accounts, especially if your train fare went up by 8%, as the average rise was 2.2%, down from 2.8% last year.

"Rail fares to rise by average 2.2%"
"Ticket price increase is lowest for five years but more annual season ticket holders will see costs top £5,000"
www.theguardian.com/money/2014/dec/05/rail-fare-increase-2015

If memory serves, how each individual component works, is if the average train fare rise last year was 2.8% and now 2.2%, although the actual cost would rise, it would record a lower rate than last year = a fall in train fare inflation.

Anyhoo, if the UK was to try and fix an inflation level, the government would look to do it BEFORE an election, not the month after - and as to 'fixing' every other countries inflation to validate ours, I guess that you have a theory for that as well.

Isitmebut Tue 19-May-15 15:21:16

Reallytired .... the citizens of a mature Japanese economy did suffer, especially as a nation of savers, and the Japanese version of their Base Rate was 0.1% was a very long time - and the fabled returns on their stock markets for many years, a distant memory - at the same time Japanese companies were relocating industrial production to much cheaper surround emerging countries.

Their main problem was their over banked banking system that wasn't encouraged to write off their bad debts, so three badly damaged banks would merge and form one large damaged bank - so became what some people later called ours for a while, 'zombie banks', but far, far, worse.

The government of Japan for many years had an aggressive UK QE type government bond buying operation every month, but still failed to break the mild deflation cycle - and it wasn't until a few years ago when the Bank of Japan aggressively sought inflation through further money printing etc, that Japan finally broke that cycle.

The Japanese birth rate was not such a problem when what was called 'hollowing out' their economy to the citizen workforces of cheaper surrounding and western countries - but certainly is as their labour costs rise, and so Japan wanted to bring their work back home.

RedToothBrush Tue 19-May-15 15:27:41

The problem in the uk more than anything is the oil price. This is what has driven this most in the last couple of months.

However since the oil prices have recovered a bit in the last few weeks, hopefully its more likely to be a blip rather than a bigger issue.

In truth we really should separate oil from these figures as it reveals a different picture.

Isitmebut Tue 19-May-15 15:34:11

RedToothBrush .... agreed, as in the U.S. for decades they produce inflation figures to also reflect 'ex food & energy', stripping out the historically more volatile components, to produce a 'core' more representative inflation rate.

For all I know the Bank of England does the same, I just can't be bothered to look. lol

InDespair Tue 19-May-15 16:27:47

I don't believe a word of it.

food banks/unemployed/rising food prices/rising everything prices.

Says wages have gone up but carers allowance/disablilty benefit etc haven't, in fact loads of things are being cut yet again for the poorest in society.

I can see Osbornes nose growing long.

Isitmebut Tue 19-May-15 16:45:05

Osborne doesn't produce the figures, do you produce yours?

As for food banks, inflation there, really, why?

The last inflation I saw there was that 1 million were using them, when the figure was actually 500,000 - after a Labour recession, the longest and deepest since god knows when - and clueless what to do about it.

Just imagine how many they'd have been in Labour had been in charge for the last 5-years and our unemployment rate closer to the Eurozone average of 11%, rather than half that.

prh47bridge Tue 19-May-15 21:57:30

Call me Dave said everything was going swimmingly

There is good deflation and bad deflation. If this was deflation due to low demand it would be bad deflation. However demand is high and consumer confidence is high. That means this is good deflation. It could turn into bad deflation if people decide to hold off buying things because they may be cheaper in a few months. That would lead to serious economic problems. But right now this is good news. Transport and food costs are down and for the average household this more than offsets rises in other costs.

By the way, serious economists would say that this is not deflation at all. Deflation, according to them, is prices falling over an extended period. The current expectation is that this excursion into negative inflation won't last much more than a month or two, after which normal service will be resumed.

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