BBC: Electronic goods costs 'may rise'

Generali

!!!!!!, you're missing an important effect of big devaluations.

Imported goods become a lot more expensive so less is consumed so they start to have a smaller impact on inflation (I mean the actual inflation rate that impacts on individuals' and families' wallets, not the RPI).

A small devaluation causes inflation. A very big one may cause hyperinflation. A medium sized one as the UK looks most likely to face causes a drop in living standards.

WTF?_2

Generali wrote: »

!!!!!!, you're missing an important effect of big devaluations.

Imported goods become a lot more expensive so less is consumed so they start to have a smaller impact on inflation (I mean the actual inflation rate that impacts on individuals' and families' wallets, not the RPI).

A small devaluation causes inflation. A very big one may cause hyperinflation. A medium sized one as the UK looks most likely to face causes a drop in living standards.

Devaluation certainly tends to cause price increases which is now the common definition of inflation.

It won't do anything to combat the real, i.e, Monetary, deflation which is caused by the reduction in the amount of new bank credit in the money supply.

As you say, drop in living standards and a lot of people at the lower end finding it hard to pay those higher prices with less jobs/money/credit around.

The perfect opportunity to dangle the 'miracle pill' of money printing in front of the electorate.

Generali

!!!!!!? wrote: »

Devaluation certainly tends to cause price increases which is now the common definition of inflation.

It leads to price increases but that feeds through to inflation in proportion to the proportion of money that is spent on that item.

If something rises in price then usually people will consume less (excluding certain important exceptions called Giffen Goods) so if something rises massively in price then people will switch their consumption to something else. To take a simple example - you like jam on your toast in the morning. If jam goes up to a tenner a jar then you might look at Vegemite instead. The price of your breakfast is probably much the same so there has been no big change in inflation. You have suffered a fall in living standards at brekkie time as you prefer jam but can no longer afford it.

Ceteris paribus (all other things being equal) is the curse of economics as all other things aren't equal. It's a reason why economics is so poor at prediction despite being excellent (usually) at description. Economies are dynamic and any change will change many other things.

Rochdale_Pioneers

Exchange rates won't stop the prices of such goods falling. To start with most aren't made in Japan with its soaring Yen, so that currency's recent surge (against not just the Pound as the usual doomsayers suggest above) won't affect them.

And most importantly - there is a crashing demand for such goods across Europe and America. The recession has hit all of us as has the credit crunch. That means that consumers from Bristol to Bratislava are stopping spending on non-essential items like cars and large TVs. Companies will want to survive and that means a way of selling their goods to a reluctant public - and that means discounting.

Anyway, even a weak currency doesn't help. The pound is seriously low against a strongest-ever Euro and yet our exporters still struggle. Why? Because there is no demand in a Europe wrecked by recession and credit crunch. Somewhere like Nissan in Sunderland should on paper be booming the exchange rates as they are. yet with virtually 80% of their production exported they've had to lay off a quarter of their staff - noone in Europe is buying cars. Honda have shut down completely, with 10k vehicles sat at Southampton Docks with no buyer. Same thing there.

paulmx3

!!!!!!? wrote: »

People don't seem to understand the importance of exchange rates in an economy so dependent upon imports. It's not just about paying more on your holidays.

bingo,you only need to look at fuel prices,they dropped quite a lot recently in my area with the fall in oil prices,now,as the value of the pound is dropping,even with oil prices falling further the price of petrol is yet again rising.

the falling pound is going to be the final nail in the coffin for the uk and the only answers to combat it would create similar problems.

Rochdale_Pioneers

paulmx3 wrote: »

bingo,you only need to look at fuel prices,they dropped quite a lot recently in my area with the fall in oil prices,now,as the value of the pound is dropping,even with oil prices falling further the price of petrol is yet again rising.

You need to look at the exchange rate 2 months ago - thats when the fuel we are now getting at the pumps was bought.

WTF?_2

Generali wrote: »

It leads to price increases but that feeds through to inflation in proportion to the proportion of money that is spent on that item.

If something rises in price then usually people will consume less (excluding certain important exceptions called Giffen Goods) so if something rises massively in price then people will switch their consumption to something else. To take a simple example - you like jam on your toast in the morning. If jam goes up to a tenner a jar then you might look at Vegemite instead. The price of your breakfast is probably much the same so there has been no big change in inflation. You have suffered a fall in living standards at brekkie time as you prefer jam but can no longer afford it.

Ceteris paribus (all other things being equal) is the curse of economics as all other things aren't equal. It's a reason why economics is so poor at prediction despite being excellent (usually) at description. Economies are dynamic and any change will change many other things.

That's true (and enables all sorts of chicanery with the inflation figures) but what I actually care about - and I think I'm not alone on this - is how much the thing I want to buy costs vs my income or savings.

paulmx3

Rochdale_Pioneers wrote: »

You need to look at the exchange rate 2 months ago - thats when the fuel we are now getting at the pumps was bought.

in theory you are correct,but as you may be aware they are far too fast putting prices up with regards oil and exchange rates yet far too slow reducing them.

rises in oil price today means rise in fuel cost tomorow,fall in oil price today means,maybe fall in fuel price in several months.

WTF?_2

Rochdale_Pioneers wrote: »

You need to look at the exchange rate 2 months ago - thats when the fuel we are now getting at the pumps was bought.

Price rises due to FX rates or international oil prices seem to feed through to the pumps near instantaneously.

For some reason, downward pressure on fuel prices seems to take months to become evident and never seems to be quite as much as the input factors would suggest..... :cool:

In any case, the pound has slumped even more in the last few months.

Generali

!!!!!!? wrote: »

That's true (and enables all sorts of chicanery with the inflation figures) but what I actually care about - and I think I'm not alone on this - is how much the thing I want to buy costs vs my income or savings.

Well here you start to get to the heart of some serious problems with inflation statistics.

How do you treat the change in price of Ferraris for example? Lots of people would like to buy one but if the price rises from 250k to 300k how many people really feel the impact of that? Very few I would argue.

I practice the ONS resolves this problem by taking a regular survey of a bunch of households. Then the basket of goods used to make up the inflation figures is tweaked to reflect changes in the spending of the sample group.

To return to the previous example, the big rise in the price of jam leading to a big fall in spending on jam means that the rise in the price of jam won't be fully reflected in inflation figures. Is this reasonable? I think so, given the alternatives that I can think of.