Deflation

MrRee_2

A trip down memory lane is great ... but, back to the topic ... deflation is good for savings attracting a low rate of return.

It's good while pay rises are running at 5%.

Inflation is happening in house prices ... but nowhere else it seems.

Do we feel better off with deflation or inflation?

If inflation was 20% and payrises were 25% would we 'feel' better off than today where infaltion is 0% and pay rises are 5%? Is there the same feel good factor?

lisyloo

If inflation was 20% and payrises were 25% would we 'feel' better off than today where infaltion is 0% and pay rises are 5%? Is there the same feel good factor?

Personally I feel better off long term with low infaltion.
I'm middle aged and my main concern is the eventual size of my pension pot in real terms.

Generali

MrRee wrote: »

A trip down memory lane is great ... but, back to the topic ... deflation is good for savings attracting a low rate of return.

It's good while pay rises are running at 5%.

Inflation is happening in house prices ... but nowhere else it seems.

Do we feel better off with deflation or inflation?

If inflation was 20% and payrises were 25% would we 'feel' better off than today where infaltion is 0% and pay rises are 5%? Is there the same feel good factor?

A problem with high inflation is that prices rise through the year but you generally get a pay rise once a year.

As a result you get poorer and poorer as the year goes on before getting rich again when you get your pay rise. Saving at the start of the year doesn't even help that much because the value of your savings is eroded so much by inflation.

High inflation is good for one group of people: those with debts at a fixed rate. If you have debts at a variable rate then while the value of the principle sum is being eroded your interest payments have risen. All that has really happened is that you have swapped higher payments in future for higher payments today.

antrobus

Generali wrote: »

A problem with high inflation is that prices rise through the year but you generally get a pay rise once a year.....

The other problem is that it confuses the price mechanism.

Generali

antrobus wrote: »

The other problem is that it confuses the price mechanism.

Yes it does and there are lots of other things too. <<good point smilie>>

My point was to answer specifically about the position of debtors and more specifically the myth that inflation is good for debtors.

The reason that 1970s inflation was good for homeowners is that the Government tried to restrict the supply of credit rather than increasing interest rates as much as required which effectively gave homeowners a subsidy at the expense of those who wanted to buy a house. The policy was an abject failure.

[Deleted User]

Thrugelmir wrote: »

My first Saturday job was working on petrol pumps. Petrol being 28p a gallon.

so was mine but i think it was 32p a gallon in 1972,same price as a pint?
i remember they were giving 50 fold green shield stamps took longer to dispense than the petrol