King warns of too-low inflation

IveSeenTheLight

http://news.bbc.co.uk/2/hi/business/7747608.stm.

Saw this reported on the television.
What it doesn't say on this report, but he did on the telly was that he did not believe that inflation would go into negative figures i.e. deflation

mustrum_ridcully

I remember someone in the late 1980's (I think) saying that very low inflation (i.e. 1% or less) was in effect deflationary. Now whether this person was a member of the tin-foil hat owners club or an economist I genuinely can't remember.

IveSeenTheLight

mustrum_ridcully wrote: »

I remember someone in the late 1980's (I think) saying that very low inflation (i.e. 1% or less) was in effect deflationary. Now whether this person was a member of the tin-foil hat owners club or an economist I genuinely can't remember.

Jus posed a link on http://forums.moneysavingexpert.com/showthread.html?p=16165981#post16165981 showin a quoe from Mervyn Kin stating

Central bank Governor Mervyn King said last week that the economy is probably in a recession, and policy makers will cut borrowing costs as low as needed to stave off deflation. The bank forecasts inflation will slow below the government's 1 percent lower limit unless it reduces the benchmark interest rate from the current 3 percent.

WTF?_2

IveSeenTheLight wrote: »

http://news.bbc.co.uk/2/hi/business/7747608.stm.

Saw this reported on the television.
What it doesn't say on this report, but he did on the telly was that he did not believe that inflation would go into negative figures i.e. deflation

No one seems to have picked up on the fact that cutting VAT from 17.5% to 15% is going to be deflationary in itself.

If we were getting deflation and it was so bad that monetary controls had to go out the window, then what is the point of adding to deflationary pressures?

I reckon deflation is being overstated as an excuse by the government to spend, spend, spend (or more accurately - borrow, borrow, borrow).

Really2

!!!!!!? wrote: »

No one seems to have picked up on the fact that cutting VAT from 17.5% to 15% is going to be deflationary in itself.

If we were getting deflation and it was so bad that monetary controls had to go out the window, then what is the point of adding to deflationary pressures?

I reckon deflation is being overstated as an excuse by the government to spend, spend, spend (or more accurately - borrow, borrow, borrow).

It is not, the sale price remains the same only the Tax as droped.

As a company all prices are stated ex VAT and will not change.
You only see a VAT price as a consumer but it is not taken in to account on inflation.

School boy error !!!!!!.;)

You could argue it will cause inflation as shops may not pass on the drop, by doing so they increase the EX VAT price.

kennyboy66_2

!!!!!!? wrote: »

No one seems to have picked up on the fact that cutting VAT from 17.5% to 15% is going to be deflationary in itself.

If we were getting deflation and it was so bad that monetary controls had to go out the window, then what is the point of adding to deflationary pressures?

I reckon deflation is being overstated as an excuse by the government to spend, spend, spend (or more accurately - borrow, borrow, borrow).

Plenty of people have commented on the paradox that this is modestly deflationary, however it is only for a year & any effect should reverse out (I am not convinced that many retails will pass it on anyway).
Additionally food & energy costs including fuel are unaffected. Housing costs (in RPI) again are unaffected.

If defaltion is being overstated why are long gilts yields so low ?.
The price of War loan stock 3.5% (undated) is higher than I can ever remember.

Really2

kennyboy66 wrote: »

Plenty of people have commented on the paradox that this is modestly deflationary, however it is only for a year & any effect should reverse out (I am not convinced that many retails will pass it on anyway).
Additionally food & energy costs including fuel are unaffected. Housing costs (in RPI) again are unaffected.

If defaltion is being overstated why are long gilts yields so low ?.
The price of War loan stock 3.5% (undated) is higher than I can ever remember.

Sorry kenny VAT as nothing to do with the price of goods. It is a TAX

When you buy somthing this month for:
£117.50 you are paying £100 +VAT at 17.5%

If you buy it next month for
£115 You are paying £100 +VAT at 15% you are still buying it for £100 +TAX so no defaltion.

If you buy it next month for
£117.50 Yo are paying £102.17 + VAT at 15%
That is Inflation

Anyone thinking VAT causes infaltion or deflation does not know how business works. VAT is not part of a sale price it is a TAX you reclaim for the goverment.

WTF?_2

Really2 wrote: »

It is not, the sale price remains the same only the Tax as droped.

As a company all prices are stated ex VAT and will not change.
You only see a VAT price as a consumer but it is not taken in to account on inflation.

School boy error !!!!!!.;)

You could argue it will cause inflation as shops may not pass on the drop, by doing so they increase the EX VAT price.

The government/media have been whittering on about the dangers of price deflation in the recent weeks and its effect on consumers.

It matters not a jot what part of of the price consumers pay is tax - if that price goes down then it's still deflation of prices. The average consumer doesn't sit down with a calculator when they get home and worry about how much cash went in taxes on each purchase.

Why don't you do a bit of thinking for a change - if we are genuinely experiencing 'dangerous' price deflation then why do we even need a VAT cut at all? How does cutting the price further combat the negative effects of price deflation on consumption?

It makes a rubbish of the official line - this is all about trying to dump money into the economy to keep consumers borrowing and spending because Gordon simply can't see any other way forward than the unsustainable consume and accumulate debt lifestyle that has powered the economy along for most of the last decade.

dopester

!!!!!!? wrote: »

I reckon deflation is being overstated as an excuse by the government to spend, spend, spend (or more accurately - borrow, borrow, borrow).

It isn't being overstated as the danger - but maybe it is being used that way for reckless reflation attempts.

However it is over now. All the extra borrowing at these levels (if the market allows for it, and doesn't price us out or make it expensive), with house prices so utterly not in this world, is only be treading water until the country is exhausted again very soon after, and probably then drown.

If we didn't borrow vast sums more.. and accepted some deflation, and let the bad debts be liquidated, we could still make it back to shore alive.

ISTL even Gordy recently in House of Commons said the danger for next year was "deflation" before quickly changing his mind to very low inflation. Deflation... glad I've not got a fat mortgage or debts.

dopester

!!!!!!? wrote: »

It matters not a jot what part of of the price consumers pay is tax - if that price goes down then it's still deflation of prices. The average consumer doesn't sit down with a calculator when they get home and worry about how much cash went in taxes on each purchase.

The average consumer with any disposable income is increasingly likely to be thinking "Why buy now when its likely to be cheaper next month." Or have an eye on their job safety.

Deflation, as a consequence of this mental insane boom to outright bank-breaking bust.. feeds on itself.

purch

It matters not a jot what part of of the price consumers pay is tax - if that price goes down then it's still deflation of prices.

I'm sorry but that is utter rubbish !!!

Deflation of prices cannot include the Tax.

Just because consumers won't bother to differentiate between the price of the goods and the tax charged, it doesn't mean that you can therefore say that because the total amount paid has reduced then that is deflation of the price of the actual goods.