Deflation? For whom?

carolt

http://www.telegraph.co.uk/telegraph/multimedia/archive/01369/2103_Real_cost_1369124a.pdf

Excellent table here, published 19 March 2009 in the Telegraph, that shows exactly what is going down in price - and what isn't.

It's interesting that - with the exception of petrol costs, which will affect most people - provided they drive - virtually every other essential has actually gone up - in the case of a lot of essentials, by a huge perecentage.

The only thing that's gone down - by a lot - is the cost of mortgages.

So it seems that all this kerfuffle about deflation applies primarily to homeowners (yes, rents are falling, but not by the kind of percentages as mortgages).

So homeowners who MEWED to buy a gas-guzzling 4X4, according to stereotype, and who coincidentally, pay for several internet connections and eat lots of eggs, will have lower costs.

But for the rest of us - those who didn't have huge/any mortgage costs to start with and drive economical cars - prices are still going UP.

So can someone explain again why we've reduced interest rates to the lowest for hundreds of years, why savers are being shat on, why we're throwing billions of pounds of our (and our children's) taxes at 'fixing' the problem, when it doesn't appear there's much of a problem to fix?

Wouldn't it be cheaper to just help out a few people who over-borrowed on their mortgages, rather than sacrificing everyone?

It seems to me that lowering interest rates is now creating exactly the deflationary spiral it was supposed to prevent, as today's headlines about pay freezes/pay cuts to come for millions, due to the fact that pay is based on RPI (including mortgages) not CPI, demonstrate.

Obviously, once these pay cuts start to bite, then the problems will really start - not only are prices still rising, but people will have less to pay them with.

It doesn't make any sense.

mustrum_ridcully

It's not every person with a mortgage it's only those on trackers or SVR, those on fixed rates have seen no benefit.

The cynic in me can't help but think this RPI deflation was a self-fulfilling prophecy, reducing IR because of the threat of deflation reduces mortages and therefore reduces RPI causing RPI deflation...

carolt

My point exactly.

mr_fishbulb

Fricking cucumbers! I though they had gone up loads the other day.

beecher

My bus pass is increasing in price by 10% later this week! How on earth can they justify this when Diesel has come down by 9% over the last year?

kennyboy66_2

The point that the Telegraphs "real cost of living" has fallen by 4.3% obviously seems to have escaped you.

Have rents fallen by £120 per months - I've really no idea, but would guess maybe not. However I am sure if you wanted to go though the hassle of moving you could probably get this kind of reduction if you negotiated hard enough.

We even have some people arguing that "housing costs" are not essential spending.

Odd, very odd.

kennyboy66_2

mustrum_ridcully wrote: »

It's not every person with a mortgage it's only those on trackers or SVR, those on fixed rates have seen no benefit.

The cynic in me can't help but think this RPI deflation was a self-fulfilling prophecy, reducing IR because of the threat of deflation reduces mortages and therefore reduces RPI causing RPI deflation...

It was CPI not RPI that was supposed to have been targeted by the BoE for setting interest rates.

BigJonnyB

CPI has gone up - to 3.2%. RPI has only slighlty moved down - to a nice neat 0% - so still no deflation.

ad9898_3

I said it yesterday, deflation is a myth at this time, mortgage IR's have been cut by the BoE and Clown has cut VAT, lo and behold we have 'manufactured deflation' so the government then gives the green light to the BoE ot 'print'.

Essentials, such as food, council tax, etc.. are all going up. Yet pay freezes and pay cuts are on the agenda. Put it this way, I pretty much gaurantee most of us will feel a lot poorer at the end of the year than we do now. The government are also now using RPI, which was never used when it didn't represent low IR's, CPI is still over the government target of 2%, and I think it will stay there TBH

Andy_L

As before, it's entertaining but flawed. The distribution of purchases doesn't reflect how people spend their cash (eg who spends 6% of their food budget on bolognese sauce) so the overall %age (for food) is a meaningless number

poppy10_2

Full report here:
http://www.statistics.gov.uk/pdfdir/cpi0309.pdf

CPI up from 3% to 3.2% (forecast was for 2.6%)
RPI down from 0.1% to 0% (forecast was for -0.8%)
RPIX up from 2.4% to 2.5%

No deflation here. Mr King will need to write another letter to Mr Darling explaining why inflation is still over 3%. Dear oh dear.