Deflation

CLAPTON

one needs to look at the reasons for deflation to determine whether it's 'good' or 'bad' for the UK


so if oil/fuel/ imported goods become cheaper then in general that is 'good' for the UK as we can now buy more goods and services overall for the same money




however, if the general prices in the UK fall because people are refusing to buy then that will lead to falling employment (or at best flat lining).
in general we would say this is a 'bad' thing

Bantex_2

purch wrote: »

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.

Earlier I asked if a definition of inflation was most things falling in price and Iwas told that was not correct either. Do you have a definition?

N1AK

Graham_Devon wrote: »

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.

I've never bought a car because I 'need' to. I bought my first car because it was more cost effective than public transport for the job I had. I've never replaced a car because it has failed and I need a replacement nor do I think that's a good way generally

It's a mistake to take individual consumer decisions and extrapolate it as a way to judge the impact of deflation. It's also ironic that the same people on here who are dismissing minor deflation as unimportant to buying decisions include the people talking about deflation being useful to deal with the wage stagnation.

If I'm a company considering a major plant refit then 2% deflation could well change the decision. Borrowing money when it's increasing in value is risky because the debt effectively gets larger instead of smaller, and if I can defer the refit I can get it for less. I also might defer it because I'm concerned that deflation may lead to less demand. So that's a few million £'s that don't get spent and a collection of manufacturing companies, construction workers etc who aren't needed. It's tax revenue that won't be raised on the additional product I could have produced with the new plant.

Graham_Devon

wotsthat wrote: »

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 can't agree with this. Reason being, I, at least, never think of a purchase in that way.

In fact most of my discretionary purchases (which I could actually put off) are actually cheaper in 6 months than they would be today. That is, if I buy the same product in 6 months time. Most of it, is technology. This doesn't stop me, or anyone else I know buying a bit of tech they want / need. We'd never buy anything if that were the case.

The rest of the stuff I buy is generally day to day items which have to be bought, pay the bills and as and when money / time / weather allows, take the kids out. None of this stuff I can really put off.

Thinking about things most of us have to buy, such as fridges, freezers, cookers, TV's etc, they all appear to be getting cheaper, not more expensive (unless of course you go for the higher end new technology). So again, I can't imagine putting any of these purchases off, and not once have I thought I'll buy one now to save money later...I don't need one now...

Thrugelmir

Graham_Devon wrote: »

I can't agree with this. Reason being, I, at least, never think of a purchase in that way.

As a society we've become conditioned to it in terms of debt.

UserJong_2

ch4 news last night openly talking bout the D word.

they said falling prices are a good thing I tend to agree as long as you dont have mortgage or any debt.

lisyloo

Reason being, I, at least, never think of a purchase in that way.

I'm sure you appreciate Graham that not everyone thinks about money in the same way.

I can split the people I know into two camps (broad brush of course).
There are those who prefer instant gratification and will buy what they want whenever they want. Often these people are filling an emotional gap and want to feel better about some aspect of their life. Some I'm thinking of have unhappy marriages and are constantly looking for something to cheer them up.
These people generally have poor finances, debt, little planning and not much in the way of savings/pensions.

Then thre are those (probably like yourself and most MSEs) who think about their purchase in the context of their wider situation and will do some planning.
That doesn't mean these people don't have luxury cars or go on luxury holiday (oh no), but they don't do it on a whim when they feel like it.
They will plan what they can afford and buy it when it suits they personal finances. In general the wider economy and price of goods, doesn't come into it because the price difference to waiting are not large enough. In general these people are happy in other aspects of their life and don't need to buy something to make themselves feel better.

Generali

This is what Brookings has to say about deflation:

http://www.brookings.edu/research/opinions/2014/10/16-reasons-worry-about-deflation-wessel

that's pretty much the standard economists' response to deflation in 5 simple bullet points.

Bantex_2

Generali wrote: »

This is what Brookings has to say about deflation:

http://www.brookings.edu/research/opinions/2014/10/16-reasons-worry-about-deflation-wessel

that's pretty much the standard economists' response to deflation in 5 simple bullet points.

And the reason we should trust economists is?

I assume they are the same people who got us into this mess.

Generali

Bantex wrote: »

And the reason we should trust economists is?

I assume they are the same people who got us into this mess.

If you distrust all economics, posting on a thread about economics on a board that is about economics probably isn't the best place for you.

I'm not sure what mess you're talking about and why economists got you there. If you called in an economist to fix your plumbing or do your tax return then you're probably right.