Deflation - Establishment Myth ?

Discussion in 'General Discussion' started by yorksrob, 4 Jun 2015.

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  1. yorksrob

    yorksrob Veteran Member

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    I've been reading in several newspapers that as a Country, we have supposedly entered the first period of deflation for several decades. I must confess, this has taken me somewhat by surprise because absolutely none of my outgoings or costs seem to have gone down whatsoever.

    Food, train fares, a pint of beer, gym membership, broadband etc, these all continue to march relentlessly up. Mortgage hasn't gone gown for years, neither has my mobile phone charge. What's more, according to The Times yesterday, "penny-pinching consumers are sticking to the frugal habits they adopted during the downturn and refuse to splash out on luxuries" so perhaps I'm not the only person who has failed to spot deflation.

    I must admit, it causes me to raise my eyebrows when I see the Governor of the Bank of England telling us to "enjoy it why we can", since five pence off the price of a bag of spuds can hardly make up for the above, nor the seven or so years of inflation that have occurred since 2008 when wages started stagnating for that matter.

    I wonder, has anybody on this forum experienced this so-called deflation that I keep reading about ?
     
  2. DownSouth

    DownSouth Established Member

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    What you're thinking of is either a cost of living index of some form, not monetary inflation/deflation.

    They are not the same thing.
     
  3. yorksrob

    yorksrob Veteran Member

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    Generally inflation is measured by a cost of living index such as the RPI or CPI, so it follows that deflation would be as well.
     
  4. DaleCooper

    DaleCooper Established Member

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    I've been on a fixed income since I retired 3 years ago and haven't noticed much difference either way.
     
  5. DownSouth

    DownSouth Established Member

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    Once again, inflation as normally understood by the man on the street is not the same thing as monetary inflation/deflation.
     
  6. snail

    snail Established Member

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    You should do something about it then. Do you really think the ONS make these things up?

    My mobile is now £12.50 a month instead of £20+, I pay less for petrol than I did 12 months ago and I get my broadband for free. More things are level or reducing than increasing. If you're unfortunate to be in the wrong demographic then you won't see the benefits.
     
  7. yorksrob

    yorksrob Veteran Member

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    According to the ONS, the Consumer Price Index fell by 0.1%, which is the deflation our newspapers and news programmes have been talking about:

    http://www.ons.gov.uk/ons/rel/cpi/c...tb---consumer-price-indices---april-2015.html

    Perhaps monetary deflation is something different altogether, in which case it is not what either the news reports or my thread is referring to.
     
  8. DownSouth

    DownSouth Established Member

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    Exactly. There will always be winners and losers, regardless of what is going on at a macroeconomic level.
     
  9. yorksrob

    yorksrob Veteran Member

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    That's an interesting point. Being a bit of a skinflint, my mobile phone has been a PAYG tariff of around £10 a month for some time, so perhaps I was already quite frugal with that.

    Free broadband though, no idea how you manage that !

    Petrol might be an issue for me as I don't drive.
     
  10. WatcherZero

    WatcherZero Established Member

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    Well food prices have been in deflation for 25 straight months, averaging just shy of 2% annual falls as the supermarket price wars against discount retailers are being fought. Clothing and footwear have been falling sharply (though as im not a fashion buyer ive not noticed) and also the price of petrol has fallen sharply finally catching up to the crash in the price of oil, though recently started edging up again.
     
  11. DynamicSpirit

    DynamicSpirit Established Member

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    Realistically, if your spending did exactly match the CPI, are you likely to notice an average 0.1% decrease in prices? I suspect not.
     
  12. Arctic Troll

    Arctic Troll Established Member

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    Yes. Yes I do.

    That said, people don't notice the deflation, but its there when you look. Milk is down to 80p for four pints, Warburton bread is down to £1 a loaf (it was £1.65 at one point), petrol is marginally cheaper (though not as deflated as the oil price, oddly enough). You notice prices going up far more, it's human nature.
     
    Last edited: 5 Jun 2015
  13. yorksrob

    yorksrob Veteran Member

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    I'd like to think I would notice an easing off of the economic pressure. Instead everything seems to increase.

    Another phenomenon that I've noticed is that whereas during the recession, many businesses felt the need to restrict price rises. Now that the recession has officially finished, these prices have begun creeping up again.
    --- old post above --- --- new post below ---
    Indeed, it depends on the fabled "basket of goods" and how it's contents are weighted. A basket that gave more prominence to ready meals, beer and shop bought sandwiches would have more relevance to me than pints of milk.
     
  14. Bletchleyite

    Bletchleyite Veteran Member

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    Yes - the price of fuel for my car. Petrol and diesel have declined in price significantly from the highs of a few years ago. This has been significant enough to cause most of the "basket" measures to show deflation, I believe.
     
  15. bignosemac

    bignosemac Established Member

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    Any evidence that the ONS make things up?
     
  16. radamfi

    radamfi Established Member

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    What would be the advantage of making up deflation? Deflation is not a good thing. Petrol is about 10% above the lowest levels we saw last year so if that increase is maintained, that will feed itself into the inflation statistics.
     
  17. Arctic Troll

    Arctic Troll Established Member

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    Inflation is based on a "basket of goods" chosen by, er, the ONS.
    --- old post above --- --- new post below ---
    Why is deflation always a bad thing?
    --- old post above --- --- new post below ---
    It's also 10p/litre more than it was just before Christmas...
     
  18. radamfi

    radamfi Established Member

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    People might stop buying stuff if they keep waiting for the price to drop. That is considered to be a bad thing by some.
     
  19. Jonny

    Jonny Established Member

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    That's as maybe, but people need to eat and keep warm etc., clothes wear out, and don't get me going about planned obsolescence.
     
  20. yorksrob

    yorksrob Veteran Member

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    I know we're supposed to be living in mortal fear of a deflation crisis, but it still doesn't seem to tally with the fact that prices have been rising inexorably for the last fifty years.

    Perhaps if they're worried about people not buying stuff, they ought to be more concerned that wages have stagnated for the past six years.
     
  21. Paul Sidorczuk

    Paul Sidorczuk Veteran Member

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    To be painfully honest, matters such as wage stagnation are viewed as one way of helping to achieve cost reduction, but one has to view such matters as discussed on this thread as either being that of a localised single country basis, as Greece seems to be doing at the present time or of all total entity that is the world economic entity itself.
     
  22. yorksrob

    yorksrob Veteran Member

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    Indeed. I think they're going to have to find a sustainable way to maintain domestic demand as I just don't believe that there is some land of milk and honey overseas queueing up to by our stuff. The big economic powers such as China and India can't afford to buy more than they sell because they have so many people whose living standards they have to increase. The other post industrial countries are in the same boat as we are.
     
  23. NSEFAN

    NSEFAN Established Member

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    Are you sure you're not just being too pessimistic and only remembering the price increases and not the prices that fall? :lol:
     
  24. yorksrob

    yorksrob Veteran Member

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    It has been said that when it comes to glass half empty or half full, I'm in the "glass - what glass?" category!
     
  25. Arctic Troll

    Arctic Troll Established Member

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    For big ticket items, maybe, but on the other hand deflation in essentials is putting more money in pockets. That's only good for the economy.

    Wage stagnation is the real issue for the economy. Sadly our Tory overlords don't have a terriy good grasp of market economics, so they can't work out why giving everyone a pay freeze is affecting our economic recovery.
     
  26. Trog

    Trog Established Member

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    I don't know if prices are getting smaller, but I am sure some food packs are.
     
  27. Harlan Cage

    Harlan Cage Member

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    If you are unemployed not claiming benefits and living on savings, deflation has resulted in very low interest rates and really does have a negative impact.

    HC
     
  28. yorksrob

    yorksrob Veteran Member

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    Has deflation actually caused the low interest rates, or does it (in as far as it exists) follow the interest rate? I say this because I was under the impression that 'low' interest rates follow the very low BoE base rate (low in inverted commas because of course, the rates the banks actually charge seem to bear little relation to the base rate when it's low).
     
  29. Harlan Cage

    Harlan Cage Member

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    In the past interest rates were fairly simple to understand however the recent recession and banking system woes have changed the landscape dramatically; add to this that the Government in league with BOE fix interest rates to meet their objectives which distorts the whole money market!

    HC
     
  30. yorksrob

    yorksrob Veteran Member

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    Governments have manipulated interest rates for decades. The BoE control of them is a relatively new innovation (from Tony Blair to pave the way for joining the Euro, if I recall).

    The difference is that low interest rates no longer seem to push up inflation like it used to do (although I would argue that compared to incomes, prices already seem to be at a high level due to the stagnating wages since 2008 - plus, manipulating the spending power of home owning households (which is what playing with the interest rate does) is hardly going to have a massive effect on prices, when so much of what we need relies on foreign markets, such as oil and manufactured goods).

    The other thing which isn't happening as it used to is that low interest rates aren't stimulating domestic spending, although again, this is hardly surprising given that so many of the consuming demographic have seen their incomes stagnate and employment position less secure, so they are hardly likely to splash out on a credit fueled spending spree.

    I reiterate my point that the countries economy is doomed until something is done about incomes.
     
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