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[MSE Lawrence]

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's "The recession’s end means HIGHER prices" Blog.

Click reply to discuss below.

[456789]

Yes prices are likely to go up - but also people are likely to have more job security etc. ? so it isn't all bad

[jediperry]

How about: I'll know the recession is over when my wages start going up again?

[LeeSouthEast]

Because as a country we don't pay nearly enough for just about everything already...

[beer tins]

Just wanted to point out an error (I think):

"expect prices to start rising once we hit the end of inflation"

should probably read:

"expect prices to start rising once we hit the end of recession".

I agree with the article 100%, the idea that things will generally get cheaper once the recession ends is bizarre!

[aris]

Prices of alot of things should be going down but they are not - why not? I think we don't have a truly free market.

Look at the price of commodities like bread. It just about doubled - because the wheat price went up:

http://www.mongabay.com/images/commo...rts/wheat.html

It has jumped down dramatically (as has the price of fuel), yet the price of bread has not come down in line with this.

As consumers, we're all suckers - if more of us voted with our wallets and spoke up about such injustice, prices might come down again.

Come on Martin - do a bit of investigative journalism and find out whats going on :-)

[JimmyTheWig]

While I can't disagree with your logic, Martin, surely it is a fact that this recession has coincided with a significant increase in prices of things we buy a lot of. (I guess some things must have come down in price for official inflation to be so low, but everything we buy seems to have gone up.)

Is this _despite_ the recession - i.e. without a recession prices would have gone up even more due to the demand not falling - or in some ways linked?

[camaj]

One thing that amuses me is when people go "tut, petrols going up again". I think "Great it probably means that the economy is recovering!". There seems to be less and less stories about the recession and I people may start to relax a little. If they do that and start spending, then surely that's a good thing for everyone?

I can understand why those people though prices going down would be a good sign. I think they equate "recession" with a lack of money or increased stress over money. To them, a fall in prices would take some of the worry away and things would seem better even though they were probably worse.

Can a recession be caused by people not spending money because they're worried about a recession happening? A self-fulfilling prophecy if you like.

[beer tins]

Originally Posted by camaj

Can a recession be caused by people not spending money because they're worried about a recession happening? A self-fulfilling prophecy if you like.

Oh yes, that certainly is the case. And the same is true in reverse:

1) The economy is in recession. The media talks of (and talks down) falling house prices, rising unemployment. People feel uncertain, they put off their house purchase and spend less money, which worsens the recession.

2) The economy is growing. The media talks of (and talks up) rising house prices, falling unemployment. People feel good and confident, they buy a house and spend more money, which further fuels the economy.

The media are IMO responsible for both helping overheat the economy and of worsening the recession. They concentrate on extremes in both cases, as this gets more viewers/readers than the less spectacular cases. Martin has complained in his blog before that the cases he gets on ITV always seem to be the extreme ones. This skews the reality of what is happening to the vast majority of people.

The sensible thing to do is save more money during the good times, when you've got a job and things are going well. Then, when a recession hits (like now), you can use your savings to buy a house/kitchen/car/etc. at discounted prices or simply to help you out if you do lose your job. Unfortunately, that seems to go against human nature, it is natural and sometimes unavoidable to get swept up in whatever everyone else is doing!

I know people who are now saying they want to sell their shares, because the return is so poor. I just want to say to them: "No! The shares are half the price they were two years ago, now is the time to buy more!"

[MSE Martin]

Originally Posted by beer tins

Oh yes, that certainly is the case. And the same is true in reverse:

1) The economy is in recession. The media talks of (and talks down) falling house prices, rising unemployment. People feel uncertain, they put off their house purchase and spend less money, which worsens the recession.

2) The economy is growing. The media talks of (and talks up) rising house prices, falling unemployment. People feel good and confident, they buy a house and spend more money, which further fuels the economy.

The media are IMO responsible for both helping overheat the economy and of worsening the recession. They concentrate on extremes in both cases, as this gets more viewers/readers than the less spectacular cases. Martin has complained in his blog before that the cases he gets on ITV always seem to be the extreme ones. This skews the reality of what is happening to the vast majority of people.

The sensible thing to do is save more money during the good times, when you've got a job and things are going well. Then, when a recession hits (like now), you can use your savings to buy a house/kitchen/car/etc. at discounted prices or simply to help you out if you do lose your job. Unfortunately, that seems to go against human nature, it is natural and sometimes unavoidable to get swept up in whatever everyone else is doing!

I know people who are now saying they want to sell their shares, because the return is so poor. I just want to say to them: "No! The shares are half the price they were two years ago, now is the time to buy more!"

What's interesting at the moment is there is a lot of "recession over" talk which is good for helping boost the economy, though how true or accurate it is Im not really that sure. Though I think my Recession'll end soon, the joy of maths blog will come true at some point

[beer tins]

Originally Posted by MSE Martin

What's interesting at the moment is there is a lot of "recession over" talk which is good for helping boost the economy, though how true or accurate it is Im not really that sure. Though I think my Recession'll end soon, the joy of maths blog will come true at some point

Yes, that's true, though a lot of the talk is from the government. The government obviously have a vested interest in talking up the economy, whatever the actual situation. I suppose the hope is that it becomes a self fulfilling prophecy. Interesting that the media is also more positive these days, perhaps we will bottom out sometime soon.

The recession (technically) ending is likely to happen sometime soon as well. A lot of people are confused about what this means, though. Of course, it simply means that things are no longer as bad as they were at their worst. A full recovery to where we were two years ago is likely to be some years away. But the "recession over" headlines may in themselves encourage more confidence and spending, again becoming a self fulfilling prophecy.

Only time will tell. Of course, the continuing shortage of capital to our highly debt dependant - and highly leveraged - economy is likely to put the brakes on any miraculous speedy recovery.

[RichOneday]

Generally the supply/demand rules do hold true as you say, Martin, and you would therefore expect prices to rise as an economy emerges from recession and companies look to rebuild their balance sheets.

However, there can be a rather long lag to this process.

In previous recessions it has been the case that suppliers of goods/services have found it difficult to push prices back to a pre-recession levels because of the new competitors that have emerged from the recession in a much leaner, and therefore competitive, state. Often these are phoenix type companies which went into the recession with high levels of debt and came out the other side essentially intact, albeit with a different name, but without any debt.

So, I guess you dont know you're out of a recession until 6-12 months after all the ingredients are in place to end it.

[The MoneySavingKid]

Originally Posted by 456789

Yes prices are likely to go up - but also people are likely to have more job security etc. ? so it isn't all bad

You can't really put a value/measurement on job security really though.

[ZTD]

Neither is true - both are true...

When the recession is over (if you drop off a cliff and bounce off the side does that mean your fall is over??) the pound should "strengthen". This will make imports cheaper. However things made in this country (both of them) should become more expensive for reasons Martin has already covered.

So things will become more expensive and cheaper at the same time, just in the same way as they are becoming cheaper and more expensive at the same time right now.

And for exactly the same reason: different currencies heading to worthlessness at differing rates.