Deflation

Bantex_2

Generali wrote: »

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

This is a cut and paste from the BoE website.

Deflation is sometimes used to describe any fall in the general
level of prices (as measured in the United Kingdom by the
consumer prices index (CPI), retail prices index (RPI) or the
GDP deflator), however short-lived.

michaels

I think we are talking about the wrong mechanism. Surely the big demotivator to spending is the insecurity deflation endgenders. Business who have already borrowed to invest see their revenue stream falling behind their debt payments and have to lay off staff. Consumer's see rising unemployment and decide not to go on holiday at all in case they.become unemployed and need the savings. All these decisions in aggregate are then self fulfilling.

Generali

Bantex wrote: »

This is a cut and paste from the BoE website.

Deflation is sometimes used to describe any fall in the general
level of prices (as measured in the United Kingdom by the
consumer prices index (CPI), retail prices index (RPI) or the
GDP deflator), however short-lived.

Good for the Bank of England. I disagree.

wotsthat

michaels wrote: »

I think we are talking about the wrong mechanism. Surely the big demotivator to spending is the insecurity deflation endgenders. Business who have already borrowed to invest see their revenue stream falling behind their debt payments and have to lay off staff. Consumer's see rising unemployment and decide not to go on holiday at all in case they.become unemployed and need the savings. All these decisions in aggregate are then self fulfilling.

Not according to the 'rosy tint brigade' (can't believe Graham's in that category). Wages are going to stay the same and the price of stuff will fall. Hope they're right.

Bantex_2

Generali wrote: »

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

That is a slightly meaningless statement if no parameters are stated. At what point does deflation start? A week, a month. a year etc etc?

Not trying to be awkward, just get a better understanding as I suspect even the professionals are just making stuff up half the time to suit their own or their employers agenda.

purch

I bought a Miele washing machine for £1,225 in 1993 (it's still going strong)

You can currently buy a similarly well made Miele washing machine with more features for less than £900

The World hasn't fallen apart.

Miele are still a successful company making good profits.

People haven't stopped buying Washing Machines because they get cheaper, in both actual and real terms over the years.

Bantex_2

Apparently when the price of illegal drugs falls, the supply and consumption goes up. Could this be because drug dealers tend not to employ economics grads and nobody has told them about what should happen?

purch

ging84 wrote: »

I think it's about time someone rewrote the rule book in deflation

It's likely to happen quite soon.

The GFC should have taught us that all the old rules should be forgotten, as we are in a vastly different time now.

Mallotum_X

purch wrote: »

I bought a Miele washing machine for £1,225 in 1993 (it's still going strong)

You can currently buy a similarly well made Miele washing machine with more features for less than £900

The World hasn't fallen apart.

Miele are still a successful company making good profits.

People haven't stopped buying Washing Machines because they get cheaper, in both actual and real terms over the years.

Would the current £900 one last 20 years though. Many consumer white goods are cheaper by lowering the quality.

purch

Bantex wrote: »

Apparently when the price of illegal drugs falls, the supply and consumption goes up. Could this be because drug dealers tend not to employ economics grads and nobody has told them about what should happen?

What an Economic graduate would tell you, is that one particular item falling in price in isolation is not deflation.

Once you get your head around the idea that deflation is not the description of a few things dropping in price, you might start to understand what it means.