Deflation Part III

Generali

I was just having an idle flick through The Economist this evening on the train and noticed the following countries experienced a falling CPI for the last period recorded:

USA
Japan
China
Canada
Euro Area (although not all Euro Countries)
Sweden
Switzerland
Malaysia
Singapore
Taiwan
Thailand
Chille

We are living in interesting times; perhaps it's time for the BoE to crank up the printing presses a little more.

Mr_Mumble

Generali, what was happening to oil prices just over a year ago? Input costs have fallen dramatically year-on-year because the commodity bubble went pop. There will be a sharp reversal of this trend over the next three months (negative CPI will be falling out of the numbers from 12 months ago).

This is why I made the swipe about looking in the rear view mirror the other day - yes we've had a deflationary period, which has still not led to any letter writing, but that is now at an end.

I'd wager that at least 75% of the countries you cite will have a higher CPI rate in both 3 and 6 months time than they do now.

Generali

Mr_Mumble wrote: »

Generali, what was happening to oil prices just over a year ago? Input costs have fallen dramatically year-on-year because the commodity bubble went pop. There will be a sharp reversal of this trend over the next three months (negative CPI will be falling out of the numbers from 12 months ago).

This is why I made the swipe about looking in the rear view mirror the other day - yes we've had a deflationary period, which has still not led to any letter writing, but that is now at an end.

I'd wager that at least 75% of the countries you cite will have a higher CPI rate in both 3 and 6 months time than they do now.

I think that the very oil price rises have worked their way through the inflation figures now (Brent Crude over the last 12 months from ft.com):



Oil is up about 25% YoY in USD terms (a little less in Sterling terms).

According to The Economist, the All Items Commodity Index is up 21.2% YoY in $ terms and up 15.7% in Sterling terms.

I can never think of a time when more than a couple of countries The Economist lists has falling prices at all let alone a great big list.

Of course Japan is an old favourite and Switzerland regularly seems to have periods of falling prices (short lived and they don't seem to cause any pain AFAICS) but never a great big list like that.

dopester

Mr_Mumble wrote: »

This is why I made the swipe about looking in the rear view mirror the other day - yes we've had a deflationary period, which has still not led to any letter writing, but that is now at an end.

Of course it's over. :rolleyes:



The UK has hyper-deflationary forces to contend with. House prices are insane (due to house price hyperinflation since 1997) and the credit fuel boom economy is busted. The young coming through have much fewer £ opportunities.

UK Gov and BoE... for every attempt at fighting deflation it brings about a lot of new problems, and they are already being forced to cut public spending costs all around (deflationary), despite desiring inflation.

Generali

I'm not sure what happened to my graph but if you follow the link you'll see a wobbly line showing Brent Crude for the last year going from about $60bbl to about $75bbl.

Mr_Mumble

Generali wrote: »

I think that the very oil price rises have worked their way through the inflation figures now (Brent Crude over the last 12 months from ft.com):



Oil is up about 25% YoY in USD terms (a little less in Sterling terms).

According to The Economist, the All Items Commodity Index is up 21.2% YoY in $ terms and up 15.7% in Sterling terms.

A barrel of oil was still $110 last September (it is why I said "just over" one year ago ). The current prices you quote are the reasons why CPI will show higher in the next few months. The list you give is presumably for CPI in September or October and you're comparing oil prices in November. That wouldn't usually be an issue but the fall last year was precipitous.



Can't see any reason we'd have deflation with that chart .

Generali

Mr_Mumble wrote: »

A barrel of oil was still $110 last September (it is why I said "just over" one year ago ). The current prices you quote are the reasons why CPI will show higher in the next few months. The list you give is presumably for CPI in September or October and you're comparing oil prices in November. That wouldn't usually be an issue but the fall last year was precipitous.



Can't see any reason we'd have deflation with that chart .

I missed the 'just over' so thanks for that.

Deflation, of course, is a persistant fall in prices, not a one off fall but it'll be interesting to see how a one off fall translates into longer term price changes - it's pretty hard to argue for a cost of living pay rise if the cost of living isn't rising for example so pay rises might be in short supply!

Really2

don't forget to factor this in. $ exchange rate.


To tell you the truth in our industry cheaper oil never really filtered through but the exchange rate did.

Don't just look at oil as a force to increase CPI over the coming months, the exchange rate this time and for the next 6 months was around $1.45 average.
That means lots of goods will now be going yoy cheaper for the next 6 months.

You may well find out goods (imported) being cheaper may offset the increase in the cost of oil.

Mr_Mumble

Shall we let the BoE decide this argument?

CPI inflation fell to 1.1% in September, having been 5.2% a year earlier. Inflation is likely to rise sharply to above the 2% target in the near term, reflecting higher petrol price inflation and the reversal of last year’s reduction in VAT.

Really2

Vat is going to be the killer thats 2.5% on virtually everything. (but not arguing that fuel will be YOY higher)

Sounds like they are not expecting it to be much above 2% (but obviously that is doubling from now)

But I think low inflation is good news as long as strong inflation or deflation is not on the horizon I am fairly OK with that.

smartn

I'm still trying to see where long term inflationary pressures will come from. OK, so the change in VAT will add a bit but where else is inflation likely to come from?