Tuesday 17 November 2015

Deflation here to stay?

inflation graphic

One thing to notice re the inflation figures is that they are totally dominated by energy costs. It is easy to forget the price of food is determined by costs of transport and refrigeration more so than the cost of land and husbandry. Thus food and energy prices has pulled down prices overall this past month.

With the price of oil falling, still falling and looking likely to fall further with record crude inventories (although refineries are not at full pelt, a wonder of the market for another post to come) the price of oil is going nowhere but down for the rest of this year. Bar a major crisis in a producer state it will stay this way for another year or two.

If oil continues its slow fall, then deflation, or something near to it, is almost inevitable for foreseeable. This makes bad reading for Government finances and the deficit, which will grow in real terms even faster and for government finance another nightmare the triple lock guarantee given to pensioners looks even more expensive.

For the country as a whole, I am less sure this will kick off a death spiral, clearly there are many warning signs in the economy suggesting hazards ahead, but deflation need not be a destroyer.

What it will mean though in the medium term is more quantitative easing to 'ease' any slowdown.


Steven_L said...

Have you been buying penny oil stocks again? Something has coloured your judgement here. Rising oil prices are not a good thing for the UK economy. Outside of Aberdeen, falling oil prices are.

The ageing population is a bad thing for the UK economy, but rising oil prices won't make folk any younger.

The change in long term government spending trends - from employing lots of middle aged people in the public sector to paying out loads more in pensions and health and social care for old folk - is only really just beginning.

The council where I work are now resorting to the borderline fraudulent mis-selling of salary sacrifice schemes for everything from brand new Audis and beemers to iphones and 55 inch curved teles. Every £1 in salary sacrificed = 25p saved in employers NI and pension contributions.

Anonymous said...

I don't think inflation figures that exclude housing costs are valid.

Don cox

MyOtherName said...

@Steven_L - CU is of the opinion that if it worked in the 1970s it'll work now. Some of his positions are so contrary to reality as to be bizarre (see below).
I thought initially he was parodying some of the positions he held but I think he genuinely is a young fogey. A sort of nice-but-dim-Tim for the blogging age.

@Anon 2:37 - wholeheartedly agree but the figures are manipulated thus to prevent interest rates from rising. If inflation was runnning at 2-3% where would rates need to be?

CUs beloved 'generation granny' are so deeply in debt (over 50% of some mortgages on Interest Only with no plans for repayment) that an interest rate hike cannot be countenanced until enough poorhouses/retirement communities are built to house them. In the meantime, because the gov refuse to deal with the problem, collossal, gigantic, unimaginable levels of immigration are required to shore up the economy.
CU opposes mass immigration and thinks rising property values (as well as being a good thing) can continue with an aging population.

CityUnslicker said...

No I don't, I despair of our house price based economy..ffs. I just think the answer is less demand and more supplyu where possible.

SL - Where do I say deflation is bad, merely that it will be with us for a few months as commodity prices die (my penny stocks in commods are long since sold or written off!).

Anyway, totally agree too re the triple lock, MON accuses of me of pandering to the aged when I want the triple lock ended in time of deflation as it is a terrible policy.

Clearly I need to write more clearly...

MyThirdNameToday said...

You do seem to come across a bit Daily Mail at times but I apologise if I have mis-characterised your position.

(I really must register for one of these services, the novelty of typing 'My XYZ Name' is wearing off....)

roym said...

Any chance of some helicopter money?

Electro-Kevin said...

MyOtherName - The mass immigration of lots of poor people does not mean rising house prices unless they are supported with taxpayer funded welfare.

A large population does not necessarily beget high room prices.

Ask the denizens of Calcutta.

MyFourthName said...

@EK - thats just a bizarre assertion!

I'd agree that a large population doesnt beget high costs but a rising population certainly does.

How very snide of you.

With that in mind, how can rising immigration not lead to increasing house prices?
We're in a situation where soldiers who fought in the middle east can be homeless in their own country while refugees will be housed.

Might be time for the squaddies to fight against their government?

andrew said...


Its all about supply and demand, not changes in population level or immigration.

If we let 5 million refugees in, stuck them in Scotland, gave them a load of building materials and tools and told them to get on with it, house prices in London would not go up.

My guess is the refugees would be happy too.

An immigrant to Scotland said...

Agree with Andrew about Scotland. 1/3rd of the land mass and 1/10 of the population. Plenty of space - but no one wants to go there.

Self-build is very popular there too, plenty of building skills no one wants to go there.

No difference in benefits; no university fees; same NHS but no one wants to go there.

Perhaps HMG lacks any coherent strategy about this - or the threat of immigration has some use for them.

Blue Eyes said...

Some of you appear to visit this site just to be gratuitously rude to the bloggers or to CTRL-V your personal mantras. What sad little lives do you lead when any and every article carries the same speak-your-weight moans from the usual suspects?

By all means challenge the article (I intend to later if I have time ;) ) but do some of you not get bored of your hobby-horses now and again?