UK inflation falls below BoE's 2 pct target in June

themanbearpig

Although QE has finished, it is yet to filter through the wider economy, so we might see a upturn soon. I think that is what everyone is hoping for.

Generali

RPIX, probably the best measure of inflation in the UK at present as it excludes mortgage payments which have taken a one-off fall due to interest rates being slashed, is at 1% down from 1.6% last month.

It's starting to look like I might be right about deflation.

kennyboy66_2

Generali wrote: »

RPIX, probably the best measure of inflation in the UK at present as it excludes mortgage payments which have taken a one-off fall due to interest rates being slashed, is at 1% down from 1.6% last month.

It's starting to look like I might be right about deflation.

http://www.moneyweek.com/news-and-charts/economics/why-deflation-wont-grip-britain-for-long-14613.aspx

Don't worry - deflation won't last long according to Moneyweek.

Whatever happened to those posters who used to scream inflation, Weimar Germany, Argentina and Zimbabwe on a daily basis ?

The problems for debtors in a deflationary environment are real enough, however I suspect the "postpone purchases" argument is a overdone - how many people postpone the purchase of a TV or Computer.

I do doubt that we will get severe and persistant deflation, say below -4% for 2 years plus.

Jonbvn

Generali wrote: »

It's starting to look like I might be right about deflation.

What did you say about deflation? A recap would be good (pls)!:cool:

It seems to have a Japanese lost decade feel to it.

the_ash_and_the_oak

kennyboy66 wrote: »

http://www.moneyweek.com/news-and-charts/economics/why-deflation-wont-grip-britain-for-long-14613.aspx

Don't worry - deflation won't last long according to Moneyweek.

Whatever happened to those posters who used to scream inflation, Weimar Germany, Argentina and Zimbabwe on a daily basis ?

The problems for debtors in a deflationary environment are real enough, however I suspect the "postpone purchases" argument is a overdone - how many people postpone the purchase of a TV or Computer.

I do doubt that we will get severe and persistant deflation, say below -4% for 2 years plus.

Tbf to the inflation camp pretty sure the more credible wing of the (mega)inflation predicters did factor in a period of deflation beforehand (and - if you are going to invoke Weimer Germany then you have to include the period of the rising mark that happened immediately before their hyperinflation imo). Pretty sure a serious theory of significant inflation has to based on govt reaction to real/perceived/credible deflationary threats - implying a period of deflation first.

tho I'm a fence-sitter on this one tbh

Generali

Jonbvn wrote: »

What did you say about deflation? A recap would be good (pls)!:cool:

It seems to have a Japanese lost decade feel to it.

The short version that I've been banging on about is that deflation is a definite possibility, although far from certain, as a result of 'deleveraging', that is a fall in the money supply resulting from banks being unwilling or unable to lend as much money as they did in the past. Deflation is still not a certainty for the UK but is looking increasingly likely IMO.

Deflation BTW is a persistant decline in the overall price level. That is not the same thing as the RPI being -ve for a few months due to interest rates being slashed while other prices are increasing at a slow rate. I think we can only call deflation once RPIX, CPI and RPI have all been -ve for perhaps 6 months.

There are obvious similarities with Japan in the 1990s (e.g. house price bubble, banks in trouble and being propped up, aging population) and also some differences (e.g. more flexible economy, people more likely to lose their jobs, bad fiscal outlook at the start, problems more widely spread across the world so exports seem unlikely to kickstart the economy).

The UK is going to be in an awful lot of trouble if deflation does take hold due to high debt levels, both Government debt and personal debt (and yeah, I know there are other countries with higher levels of national debt - in absolute terms the UK's Government debt is high at > 50% of a falling GDP).

RabbitMad

Generali wrote: »

The UK is going to be in an awful lot of trouble if deflation does take hold due to high debt levels, both Government debt and personal debt (and yeah, I know there are other countries with higher levels of national debt - in absolute terms the UK's Government debt is high at > 50% of a falling GDP).

Which is why hyper inflation is likely / probably route out of the mess we are in.

Graham_Devon wrote: »

Oh, looks like another record has been broken in the "shortest recession ever".

The RPI is at the lowest it has ever been since records began in 1948.

This isn't going to be the shortest recession - we have a long way to go (or are your quotes ironic?)

Generali

RabbitMad wrote: »

Which is why hyper inflation is likely / probably route out of the mess we are in.

How would you define hyperinflation, please?


I think it's highly unlikely but I suspect we have different ideas about what constitutes hyperinflation.

Jonbvn

Generali wrote: »

The short version that I've been banging on about is that deflation is a definite possibility, although far from certain, as a result of 'deleveraging', that is a fall in the money supply resulting from banks being unwilling or unable to lend as much money as they did in the past. Deflation is still not a certainty for the UK but is looking increasingly likely IMO.

Deflation BTW is a persistant decline in the overall price level. That is not the same thing as the RPI being -ve for a few months due to interest rates being slashed while other prices are increasing at a slow rate. I think we can only call deflation once RPIX, CPI and RPI have all been -ve for perhaps 6 months.

There are obvious similarities with Japan in the 1990s (e.g. house price bubble, banks in trouble and being propped up, aging population) and also some differences (e.g. more flexible economy, people more likely to lose their jobs, bad fiscal outlook at the start, problems more widely spread across the world so exports seem unlikely to kickstart the economy).

The UK is going to be in an awful lot of trouble if deflation does take hold due to high debt levels, both Government debt and personal debt (and yeah, I know there are other countries with higher levels of national debt - in absolute terms the UK's Government debt is high at > 50% of a falling GDP).

Thanks G, most useful!

On a personal level, when an economy is in deflation, what would you suggest is the best approach? Some of the obvious things:

1. Keep your job, even with a pay-cut.
2. Cash is king.
3. Debt is generally bad.

BTW, if we are in deflation, some of the savings rates on offer start to look quite attractive!

Generali

Jonbvn wrote: »

Thanks G, most useful!

On a personal level, when an economy is in deflation, what would you suggest is the best approach? Some of the obvious things:

1. Keep your job, even with a pay-cut.
2. Cash is king.
3. Debt is generally bad.

BTW, if we are in deflation, some of the savings rates on offer start to look quite attractive!

All good points. Another would be that debt isn't always obvious (for example, buying equities is indirectly a leveraged investment as usually the companies you're buying have substantial levels of debt).

Productive farmland could be a good investment too as falling disposable incomes would mean a greater proportion spent on essentials such as food. Also, deleveraging implies lower levels of imports which means the UK would have to grow more of her own food.