Deflation

N1AK

Bantex wrote: »

Think Switzerland has had sub 1% and dipping into minus territory inflation for the last decade or so.

They seem to be doing OK for themselves.

And I've got a lovely pair of sofas in my lounge but they, much like a country hovering around 0% inflation, aren't deflationary

The Swiss economy may well teach us some lessons in operating with low/no inflation, but we're only talking about a few recent years and even they have done things like selling currency and are prepared to take bigger steps to avoid deflation if required.

NorthFin

N1AK wrote: »

And I've got a lovely pair of sofas in my lounge but they, much like a country hovering around 0% inflation, aren't deflationary

The Swiss economy may well teach us some lessons in operating with low/no inflation, but we're only talking about a few recent years and even they have done things like selling currency and are prepared to take bigger steps to avoid deflation if required.

Bigger steps to avoid deflation? Like turn up the printing presses to turbo, and do helicopter drops of currency? Maybe give everyone back all the tax they have paid in their lives?

Seriously in Japan they just doubled the amount of Yen in the supply. They gave every Japanese person a pile of cash to go spend on whatever they liked?

I wish the B.O.E would this in the UK. Especially in the run up to Xmas :money::beer:

Graham_Devon

I wouldn't put off buying a car, afterall, I generally only buy a car when I have the need to buy one - so that won't change. If I want to save on buying a used car, I simply look at one with a few more thousand on the clock.... I don't wait until a price drops.

I don't think I'd put off say a £500 holiday until next year if it meant next year that holiday might be 3% cheaper. Afterall, it's a saving of just £15. Currencly fluctuations could easily wipe out that saving. Secondly, £15 is simply not worth putting my, and my families lives on hold for!

I might put off installing central heating or buying new windows. But in this case, I think anyone who might put buying these goods on the backburner due to deflation would naturally have put them on the backburner anyway. Afterall, we aren't all out buying these things before they go up due to general inflation.....

The rest of daily living essentials I can't put off. I know right now that petrol is very likely to be cheaper in the next couple of weeks, but putting off my purchase simply isn't an option.

On a personal level I feel we would need to see huge deflation in order to have people putting off purchases. If my £500 holiday might cost £375 next year, I might think about it. But 3% deflation equaling a £15 saving? It's not even worth thinking about.#

I think when talking about delaying buying due to deflation, we need to look at the products people "buy now" to save inflation down the line. I can only think of one thing that falls into that camp.... houses. In any other situation I can't think of a single commodity people buy up years in advance before inflation kicks in.

Bantex_2

If a government announced they were going to increase VAT by 1% every six months for the next five years, surely that would solve the problem of people delaying purchases.

NorthFin

Bantex wrote: »

If a government announced they were going to increase VAT by 1% every six months for the next five years, surely that would solve the problem of people delaying purchases.

It would also kill the recovery. We have 20% VAT, look what happened to Japan as they just raised it from 7% to 8%???????

Seriously we need to at least bring VAT back down to 17.5% again then back down to more reasonable levels compared to most countries.

Bantex_2

NorthFin wrote: »

It would also kill the recovery. We have 20% VAT, look what happened to Japan as they just raised it from 7% to 8%???????

Seriously we need to at least bring VAT back down to 17.5% again then back down to more reasonable levels compared to most countries.

Would that not be deflationary, which is apparently disastrous?

Generali

Bantex wrote: »

Would that not be deflationary, which is apparently disastrous?

Deflation isn't a price going from x to x-y.

Bantex_2

Generali wrote: »

Deflation isn't a price going from x to x-y.

If the price of nearly everything goes from x to x-y that could be a classed as deflation. There does not seem to be just one definition of the term.

wotsthat

Graham_Devon wrote: »

I think when talking about delaying buying due to deflation, we need to look at the products people "buy now" to save inflation down the line. I can only think of one thing that falls into that camp.... houses. In any other situation I can't think of a single commodity people buy up years in advance before inflation kicks in.

Our brains have been conditioned for inflation. There's currently a spreadsheet in our head that believes the value of money will fall and the price of goods will increase. We 'know' if we need something there's little point in delaying because today's price will never be any cheaper.

I've always thought of deflation as a spiral as opposed to the grind of inflation. Some people will delay the purchase of a car, that will reduce demand for cars, the manufacturer needs less staff, staff get made redundant or take a pay cut, they can't afford a new car now, demand falls again...

Before you know it £15 off a holiday is irrelevant because you've had to take a pay cut and can't afford it anyway.

I find the comments about not delaying buying this that and the other for the sake of a few quid a little bemusing. Yes I wouldn't delay a holiday to save £15 out of £500 but to use this as an example as why deflation would be good is to misunderstand human nature and the fact that wages will be under pressure to deflate too.

Generali

Bantex wrote: »

If the price of nearly everything goes from x to x-y that could be a classed as deflation. There does not seem to be just one definition of the term.

Yes there is. Deflation is the persistent tendency for prices to fall.