Deflation, deflation, deflation

HAMISH_MCTAVISH

CPI at -0.1%, first time since 1964.

Many things are actually getting cheaper, rather than just decreasing in the rate at which they get more expensive.



This is of course a temporary thing, and the BOE are right to look through it as they did when inflation was temporarily above target.

However I'm sure the usual suspects will be here soon, screaming that the BOE should immediately engage in monetary easing to get inflation back up to target......

IveSeenTheLight

HAMISH_MCTAVISH wrote: »

This is of course a temporary thing,

It is definitely a temporary factor and can easily be articulated as a result of the reduction in the price of oil from a year ago.

This is making the costs for everything cheaper.

Once we pass the end of the year, we'll see this YoY impact bottom out and then impact accordingly on the CPI levels

Linton

This really shows the weakness of using a year on year headline figure where what happened a year ago is as important as what is happening now. If you look at the monthly figures here for example you will see that the cost of living reached a maximum 6 months ago in October 2014 and has been bouncing around going nowhere in particular since then.

Generali

Funnily enough I've been thinking of starting up inflation watch threads, well one for the US anyway.

What we're seeing isn't deflation yet or probably at all. It's a one off repricing downwards of commodities, most likely in anticipation of US interest rate rises.

I'll explain my thoughts after dinner. Beef stew. NOMTASTIC!!!

purch

According to my mate Peter Schiff ............................... :eek:

michaels

Given the monetary and fiscal levers available at the moment it is probably pretty lucky it is not 'real' deflation :eek:

Thrugelmir

IveSeenTheLight wrote: »

This is making the costs for everything cheaper.

Not if what are buying in to manufacture with is priced in US$.

lisyloo

What is "real" deflation please?

purch

lisyloo wrote: »

What is "real" deflation please?

It's when the Beeb have to bring in someone who actually knows what she/he's talking about, rather than relying on Peston to make a pigs ear of explaining it.

Generali

lisyloo wrote: »

What is "real" deflation please?

Imagine there are two things you can buy in the world, petrol and apples.

If the price of petrol falls massively because someone finds a trillion gallons of the stuff in Wales there will be a one off fall in prices. For a year or so, the average price of apples and petrol will fall, despite the price of apples being pretty much unchanged. That is disinflation.

Imagine a different situation. People are making and selling petrol and apples. Then there is an economic shock and peoples' incomes fall. They are wary about the future so save money rather than spending. Apple and petrol sellers have an excess of supply to shift so they have a sale. They make less money so lay off staff.

People get more concerned about the future so spend less. Apple and petrol sellers are forced to cut prices more and lay off more staff and so the slide continues.

That is deflation or "real" deflation if you prefer.

HAMISH_MCTAVISH

lisyloo wrote: »

What is "real" deflation please?

The spike of a few years ago to temporarily above target CPI was primarily caused by oil prices rising and the increase in VAT. Once it worked it's way through the system CPI headed lower.

The dip in CPI of today is primarily caused by oil prices falling, once that works through the system CPI should head up again.

Temporary price changes due to external impacts are not really inflation or deflation, those words are better suited to describe a monetary phenomenon that becomes self-reenforcing.