Tuesday, 17 February 2009

Inflation. A modest decline


Inflation fell fell slightly in January to 3%, from 3.1% in December. Economists were surprised having expected a fall to around 2.7%. Rises in the price of household equipment, such as furniture, clothing and footwear, nearly all imported and bought with a very weak pound, have offset falling prices in energy bills. The energy bills didn't fall nearly enough. Neither did fuel, which missed out on the VAT cut. Alcohol prices have risen, pushed up by tax increases.

Retailers, as we long suspected, did not continue slashing prices beyond the point where they made any profit, opting for a longer term strategy of lower sales/higher profits. They have also reduced stock levels. There is not that much stock to clear. Food prices remain quite high.

Inflation will come down this year, but its going to take longer than the MPC think. { predicted CPI inflation will drop to 0.5% this year and will remain below its 2% target for two years.} The rush to slash prices at Christmas, when the heaviest footfall is recorded is completely understandable. To have expected retailers to continue slashing prices when footfall is at its lowest point is less understandable. Prices will fall,along with inflation at quarter two, with the sell off of the quite large stocks of 2008's summer goods, unsold due to the second lousy summer in a row, and the very start of the fell bad factor.

6 comments:

Blue Eyes said...

I think inflation will fall a bit more then suddenly start spiking as all the "something" policies kick in simultaneously.

Buy gold or property.

Anonymous said...

OOPS

it's either banned or compulsory said...

BBC Radio 4 news today was presenting inflation as a Good Thing because at least it isn't deflation.

Someone explained to me a while back, when inflation was negligible despite increases in the money supply.
The real inflation he said was hidden by rising house prices which are not included in most indexes.

Buy shares in mobile phone manufacturers since the Police can now nick yours as they accuse you of taking terrorist photos with it.

JKA on Economics UK said...

Hi Dominic,
CPI deflation?
Service sector inflation was 4% in December and has never been below 2% Food inflation 10%, household utilities 14% in the month, this doesn't a deflationary scenario.
JKA

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