Tuesday 25 October 2011

V or W ? I or D ?

Thinking back to 2008-9, two debates raged. A V-shaped recovery, or a W ? (or a U or an L ...) Inflation or deflation ?

And now we know. It's I for sure, and W (at best) - even if some persuaded themselves the first leg was a V.

I was never 100% certain about I/D: inflation was my first instinct (hence loading up with max NS&I tax-free index-linked); but never having studied economics I had no confident counter against the many who seemed to have strong arguments for D. Perhaps it would have been D had the authorities not been so smart as to helicopter in all that dosh.

But the V was never on, that much was clear.

Interestingly, oil is still comfortably in 3 figures. Can this last ? Everything hinges on China and India: more on this when time permits.



Sean said...

And dont forget about the "S" shape,
The one where you disappear down the tube

Budgie said...

There was no way the government would head towards the 1930s, so that's why QE was invented: inflation was considered to be the lesser of two evils.

There never was going to be roaring inflation either because the economy (UK and the rest of the Western world) is too damaged. Inflation at 5% - 6% for the next decade should see debt halved.

CityUnslicker said...

Budgie, real inflation is much higher. I am no gold bug, but you can see the real inflation of rate when you look at commodity prices. The $, £ and Euro - even the Yen - are all in a race to the bottom.

As such, high oil prices are here to stay, things that have real costs are not falling away.

The BOE is as usual wrong to say inflation is going to fall fast next year, it has been wrong for 3 years on inflation and shows no signs of turning. yes tax rises and VAT will come out, but as the pound devalues further against real commodity prices inputs will continue to go up (i.e. the shopping bill, filling the care etc).

james s said...

I think I argued on this at we'd get an L shaped recovery.

Timbo614 said...

Comparisons are interesting.

Timbo is in Reykjavik, capital of the financial terrorists of 2008! The last time I came here (2007) everything seemed outrageously expensive, now not so much....

UK: go to scruffy dilapidated pub. Buy 4 beers (3 for mates) and packet of smokes: Cost £21

IS: Go to bar in nice freshly refurbished hotel, buy 2 beers, light meal and 1 glass of wine, cost £24. that is almost the same price as 4 years ago when I considered it outrageous.

Given what happened here, if the pound was doing well this stuff should be costing me half as much!

Inflation is rife especially on anything we might actually enjoy!