Deflation? For whom?

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carolt wrote: »

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.

Great post Carol, I would like this statement above to be put to Crash, it would be good to watch him riggle out of it, with his hand gestures trying convince people that what is coming out of his mouth wasn't utter s**t.:rolleyes:

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kennyboy66 wrote: »

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

But...but... that doesn't suit now:rolleyes:, i.e. it won't help bail out the over indebted.

kennyboy66_2

ad9898 wrote: »

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

You may be right in your 2nd paragragh, however people can't have it both ways, rejoicing that house prices are falling and then claiming deflation is a myth.

The reason RPI is given prominence is that it is (and has always been) the index that state benefits / pay awards have been linked to.

Wookster

ad9898 wrote: »

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

Exactly. Deflation is being trumpeted so that frantic (and desperate) measures can be undertaken to re-inflate the house market.

It is madness. Absolute madness.

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poppy10 wrote: »

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. Dear oh dear.

The government are now screwed (and so are we:mad:), their 'little plan' to create deflation, so they can reduce interest rates to zero and print money, doesn't seem to be working.

poppy10_2

ad9898 wrote: »

their 'little plan' to create deflation, so they can reduce interest rates to zero and print money, doesn't seem to be working.

They already reduced interest rates essentially to zero and started printing money. They thought deflation would ensue. Any economics A-level student could tell you the opposite would happen.

mustrum_ridcully

kennyboy66 wrote: »

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

Yes and CPI doesn't look remotely negative to me, infact it ROSE to 3.2%! CPI rising and above 2%, so why are interest rates at 0.5% (oh yes deflation I forgot).

The BoE know the media will talk about deflation even when it's RPI deflation (CPI still being above >2% isn't as good a headline as DEFLATION) and won't question falling interest rates

carolt

kennyboy66 wrote: »

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

Quite.

Well said.

'Supposed to' - but clearly it isn't.
When house prices were going through the roof, the government were happy to sit oin their hands and say - but look - it's OK because cheap Chinese tat means that we have no inflation problem. So we can ignore RPI. Now that house prices are falling, magically RPI matters, and the fact that real inflation that affects most people (ie not just a few who took on too much debt to buy over-priced houses) is going UP!!!! (thanks poppy10, for the figures - UP to 3.2%), is conveniently swept under the carpet. :mad:

Deflation my !!!!.

poppy10_2

Oil price are half what they were this time last year. So why are household fuel prices (gas and 'leccy) up 22.3% year on year?

They were quick to put the prices up when oil was rising, but since the collapse in oil prices we haven't seen the promised fuel price drops.

carolt

kennyboy66 wrote: »

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

No - it hasn't escaped me. My point - that the supposed 'deflation' only applied to those with big mortgages on tracker rates, and/or very heavy petrol users, appears to have escaped you, however.