Deflation & Savings?? What effect?

kennyboy66_2

ixwood wrote: »

Deflation punishes debt and rewards savers. If it happens, chickens will come home to roost.

Except that in previous periods of deflation one of the consequences of "punishing debt" is that banks fail. Savers are "rewarded" by seeing their deposits dissappear.

Your faith in the government guaranteeing deposits in extreme deflationary periods exceeds mine.

evenasus

ixwood wrote: »

Deflation punishes debt and rewards savers. If it happens, chickens will come home to roost.

Nagiw wrote: »

But we'll all get basted. (sorry;) )

Got it :rotfl: :rotfl: :rotfl:

nilrem_2

What gets me is that the media keep on about how wonderful this problem is for the shoppers etc but in the main the things that go down in price are not the essential things that we need to live, it is usually designer clothes and stuff plus luxury goods, we don't see reductions in things such as Electricity and heating bills, water rates or Council Tax, the cost of these things is a major problem for many poorer families but I bet we don't see many of these going down!

moneylover

Nagiw wrote: »

It's worse if you have debt as this will still increase, only faster. But it can effect pensions as they are worth less (equities etc) and don't forget, the government will REDUCE the state pension if inflation is negative.
quote]

Is it true that the state pension can be reduced? I understand not increased, but reduced?

evenasus

nilrem wrote: »

we don't see reductions in things such as Electricity and heating bills, water rates or Council Tax, the cost of these things is a major problem for many poorer families but I bet we don't see many of these going down!

You are so right nilrem. These are the things that need to go down.
But as you say - bet they don't. Well, not unless we have a revolution.;)

LesU

john_s wrote: »

RPI is, in fact, exactly that! The 'average' rise in the cost of living. The trouble is, hardly anyone is average. For some, their personal rate of inflation will be more, for others, less. .

I agree, but what RPI doesn't and can't allow for, is choice.
When the going gets tough, what is it that you can do without and what do you need as essential? The RPI doesn't make any distinction between food and DVD players!
If, by cutting back on non-essentials, your personal RPI rises from 4% to 10%, you are going to notice it. Is the solution to go out and get a new flat screen TV?
It has been a scandal that pension rises have been based for many years on an RPI that bears no relationship to the cost of living of the average pensioner.

evenasus

moneylover wrote: »

Is it true that the state pension can be reduced? I understand not increased, but reduced?

That made me think too. Has it ever been reduced in the past?

john_s_2

LesU wrote: »

I agree, but what RPI doesn't and can't allow for, is choice.
When the going gets tough, what is it that you can do without and what do you need as essential? The RPI doesn't make any distinction between food and DVD players

If I recall correctly the RPI uses a basket of goods that are chosen by analysing the 'Expenditure & Food Survey' (or similar name), which is a Government survey of the population where volunteers keep diaries of their expenditure. This is then used to produce the 'average' basket of goods that the 'average' person buys. And the 'average' change in prices of those goods makes up the RPI series. (The methodology is on the Office for National Statistics (ONS) website somewhere.)

So as you can see, there's a lot of averages going on!

I think there is an inflation index published for pensioners (and I daresay other groups) but it is buried away in the labyrinth that is the ONS website. I assume the basket of goods used is adjusted for what pensioners typically buy (from the survey mentioned above).

refusnik

Borrowing for capital investment makes some sense. But borrowing for consumption is absolute madness. This country has injected a huge amount of borrowed cash in consumer economy. This credit money has to be taken out and destroyed. Bring on deflation!

refusnik

nilrem wrote: »

What gets me is that the media keep on about how wonderful this problem is for the shoppers etc but in the main the things that go down in price are not the essential things that we need to live, it is usually designer clothes and stuff plus luxury goods, we don't see reductions in things such as Electricity and heating bills, water rates or Council Tax, the cost of these things is a major problem for many poorer families but I bet we don't see many of these going down!

People don't realise that if the income stays the same and price inflation hits 5% then £100 product becomes £105 in one year. However, if inflation drops to 0% and stays at 0% the product remains priced at £105 indefinitely. We had price inflation exceeding income rises for a very long time. We need extended period of deflating prices to at least get us where we were before!

We have not encountered a bump on the road - we have driven up the ramp and we need to get down somewhow. Useless jobs, fantasy economy, employment for the sake of statistics... Deflation, please.