UK inflation rate turns negative

http://www.bbc.com/news/business-32793481

by lentil_soup • 11 years ago

35 82 11 years ago

bbc.com

0x006A• 11 years ago

also known as deflation.

ed_blackburn• 11 years ago

Apparently it needs to be sustained to be deflation.

_0ffh2• 11 years ago

Nope, I don't think so. That's just a political talking point.

Chancellor: "Negative inflation is not damaging deflation"

So it's not "damaging deflation", but it's still deflation.

"Economists [...] say proper deflation is a long term term trend of declining prices [...]"

So it's not "proper deflation", but it's still deflation.

We could also s/inflation/negative deflation/ and that would be absolutely correct.

They are avoiding the word for fear of the connotations of a sustained period of deflation. Which will actually make the problem worse, as it sets a precedent for a changed understanding of the word deflation. So next time everyone will be even warier of using the term. Instead they should accustom people to hearing the word without thinking "OMG! WE ARE ALL GOING TO DIE!!1!".

ExpiredLink• 11 years ago

not only in the UK

stegosaurus7• 11 years ago

No, it really doesn't.

Housing is 50% of my budget. It's 50% of everyone I know's budget, or more. It is most certainly not getting cheaper at all, it is skyrocketing.

I don't care what 'inflation rate' the lucky few that own outright face. Why should I? They have won. They've completed the game. Inflation could run 15% for years and they would still win.

If you are going to define inflation on such a ridiculous basket that it really is irrelevant what the prices move to then don't pretend that it's a useful indicator of anything.

adventured3• 11 years ago

After 50 straight years of inflation, I get amused at the fear mongering that begins with a supposed -0.1% negative inflation rate.

The greatest trick the keynesians ever pulled, was convincing the world that some inflation is healthy, and all deflation is cause for fear.

mauricemir11• 11 years ago

It can be look at how property prices in Japan crashed negative equity is never a good thing

wintersFright4• 11 years ago

My understanding is that a real deflation would crash the current financial system. Savers in fiat are paid interest from money created from debtors taking loans. In a deflation, the volume of money is reduced. Debtors instead of having their debts inflated away, have their real debts increased. Triggering defaults, triggering destruction of money, triggering further deflation. Savers don't win by having hoards of cash since their assets are the liabilities of the defaulting debtors - which are going up in puffs of smoke.

For this reason, central banks will run interest rates down to juice more inflation....oh wait...they are already at near zero...

mauricemir11• 11 years ago

That is the problem, the ONS office for national statistics was tasked to come up with a new inflation index that did have some element of housing costs CPIH.

Unfortunately the last government didn't like the results and the ONS was to to go away and try again.

Another problem if the basket of goods used has formerly expensive items like DVD players and Computers that over time experience massive price deflation - it skews the figures

stegosaurus7• 11 years ago

The core issue is using irrelevant items.

Any luxuries in the inflation basket immediately means that it is only relevant for the top 50% of the population.

If you are rich then inflation is just annoying. If you are poor then it is catastrophic. So it makes sense to focus on the latter.

mangecoeur• 11 years ago

FT analysis of error in calculating rental costs

http://www.ft.com/cms/s/0/09894118-a899-11e4-bd17-00144feab7...

When housing is 50% of your budget, I really don't see how a "drop in sea fares" is very relevant...

stegosaurus7• 11 years ago

Nothing except housing is relevant. Nothing at all.

For a UK citizen buying a home (or renting cheaply and saving) is the thing to do. It is the first step along the way to retirement. It's the only thing that matters.

If housing is cheap we are rich. If housing is expensive we are poor.

Hell, the fact that 'stuff' is getting cheaper may well be because demand is repressed by the fact that everyone is scrambling to pay the rent and has no disposable income.

I maintain that the price of stuff is totally irrelevant. We can live without stuff (regardless of whether the average person actually does). We can't live without shelter.

the_mitsuhiko• 11 years ago

The problems in the UK started a lot earlier than when property prices started climbing. Everybody started getting mortgages for their houses and flats instead of renting something. Credit and debt runs that country more than anywhere else I have seen. People get payday loans for Christ's sake.

That's not a healthy sign, and I don't think that was the fault of "them". Individuals did that.

doc_holliday• 11 years ago

It is a combination.

Policies from the government over the last couple of decades have combined with people's greed, and well we are where we are today.

Individuals are of course to blame too, but it is hard to pin point who got the ball rolling.

mauricemir11• 11 years ago

Payday loans in the UK have been around for a long time and well before that you have Pawnbrokers

mauricemir11• 11 years ago

Because common sense its better to investing in something than pay the same or higher to rent it.

Renting would have to be a LOT! cheaper than owner occupiers to make renting a rational decision.

oliwarner• 11 years ago

Why are you attacking mortgages in the same paragraph as payday loans?! They're substantially different things.

Owning your house isn't a bad thing if you can afford it and its value doesn't tank. The buyer is largely responsible for those things. Further, most homeowners treat their homes as an investment. They do what they can and trade up when they can afford [to mortgage] something better. When they retire, they trade down and release 50 years of equity.

Yeah pensioners with money. That sounds horrid.

The UK's housing issues are far more to do with the inadequacy of rents. Soaring rates (underpinned by flat welfare rates). Unfair terms. Agents that lump on their own hidden fees and arbitrary terms. In more than one case in my past, my rent has been substantially more than the equivalent mortgage would have been.

adwhit• 11 years ago

Rent for my 1-bed flat in London zone 3: £19000/year.

Can London really continue to have an interesting tech scene under such circumstances? Tech wages (outside the financial sector) are around £30k-£60k.

pyriku• 11 years ago

Housing is expensive in London, but £19,000/year (£1,5833/month) is way too much for zone 3. You can find cheaper and closer...

I'm living in zone 2, and rent is £1,300 for one bedroom flat.

retube4• 11 years ago

Then you are paying way too much. There's lots of smart 2 beds in Putney for the same price - zone 2, close to the high street & shops/mall/supermarket, 5 mins walk from railway (17 mins to waterloo) or tube (20 mins to earls crt, south ken etc)

m-i-l• 11 years ago

A quick search on e.g. rightmove.co.uk suggests there are multiple studio flats and one beds in the Shoreditch / "Tech City" area (some in zone 1) in the £14K-£15K pa range. Still not great I know especially on a £30K-£60K pa salary, but significantly cheaper than £19K pa, and the savings could help you start building up a deposit.

oneeyedpigeon2• 11 years ago

Whereabouts, specifically? 'Zone 3' varies quite a lot; I recently moved out of a 2-bed flat in zone 3 which was 12K/year. It was a large 2-bed as well: main bedroom could have held 3 double beds, living room was about twice that size, large kitchen (huge by London rental standards) with room for a dining table, garden. Rents are increasing by about £1,000-1,500/year, but that doesn't account for the difference. I suspect you are talking about a pricier part of zone 3.

marrs5• 11 years ago

Good question. I think it will, but I think other cities will continue to draw talent.

http://www.telegraph.co.uk/finance/yourbusiness/11390230/Bou...

neverminder• 11 years ago

I will venture a guess - it's a nice and refurbished (or newly built) apartment, unlike majority sub-standard quality accommodation in London, thus the price. I am paying more or less the same for a studio in zone 1.

tgpc• 11 years ago

Agreed. I think what the government meant to say was 'we ignored the thing that is going up in price, so there is no inflation'.

JupiterMoon2• 11 years ago

Does this include pump prices for fuel?

desas• 11 years ago

Yes. The ONS maintain an infographic for how they calculate CPI at http://www.ons.gov.uk/ons/infographics/how-cpi-is-calculated...

JupiterMoon2• 11 years ago

Well that accounts for the fall then. Pump prices have come down. (Let's not get into whether they've come down in line with world fuel prices.)

gerty• 11 years ago

This. Zero (or negative inflation) today is mostly due to lower oil prices and slower increase, even decrease, in non-processed food prices (at least it's the case in parts of continental Europe). Core inflation, which excludes volatile stuff, in the UK is 0.8%. Although slowly decreasing, it's still well above 0%. Core inflation is here the number that matters.

fulafel• 11 years ago

Both (core and straight inflation) numbers matter, they have different uses. Food and energy costs are important parts of inflation. For some uses it can be interesting to exclude these, yielding an approximation of the inflation with less volatility.

Oil prices for example have been coming down long enough that it's not noise re economic effects any more, so it would be bad to exclude the effect of cheaper oil.

jacquesm4• 11 years ago

So, how long before we reach a deflation spiral as more and more people hoard their money in hopes that they can buy more stuff for it tomorrow than they can buy today which will totally crash the economy? Just a bit more of this and bitcoin will start to look pretty good!

porker• 11 years ago

In the UK hoarding is also known as "trying to buy a house". I've been hoarding for nearly a decade and I'm almost there!

mavdi• 11 years ago

Sadly house prices rates are way higher than my hoarding rate. I'm further away from being able to buy a house than 5 years ago.

brc5• 11 years ago

Name a single deflationary spiral that has happened.

Identify how much spending you can postpone until next year.

Reflect if a deflationary spiral is even remotely likely.

jacquesm4• 11 years ago

Name a single deflationary spiral that has happened.

None whatsoever.

Identify how much spending you can postpone until next year.

Everything except for life's necessities.

Reflect if a deflationary spiral is even remotely likely.

It isn't but it's an interesting thought experiment.

A world with a large deflation is probably a world in which all natural resources have been harvested and the only things that still flow freely are sunlight and rain.

cynicalkane• 11 years ago

The extremely strict monetary policies of German president Hindenburg, a reaction to the hyperinflation of a few years before him, caused a deflationary recession that directly preceded the rise of Hitler.

seanmcdirmid2• 11 years ago

Uh, is this a trick question? Japan?

benihana• 11 years ago

hoard their money

I'm not sure about you, but I've always called that 'saving'

jacquesm4• 11 years ago

Yes, but you're saving to accumulate an amount with some particular purpose, usually not because your money will theoretically buy you more tomorrow (likely it will buy you less in the normal inflationary version of the world).

Hoarding is something like but not quite exactly the same as saving.

brc5• 11 years ago

Right, unless you're stashing currency into your mattress or burying gold bars in the yard, your money hasn't gone anywhere. It's in the bank, which is the lending it out to those who have a a better user for it. Hoarding is a an invented scary word for saving. Saving is the underpinning of all investment, and investment is the key to productivity gains. Productivity gains are the key to increased living standards.

To then turn that upside down and say that saving makes things worse is only possible by using the word 'hoarding' as it conjures images of a fleeing deposed lord burying the family treasure in a field.

In reality, returning economies to health requires a stable or increasing rate of savings.

mauricemir11• 11 years ago

The problem is that a Fetishistic obsession with 100% cash savings instead of actually investing in something is not a good thing for the economy.

It also leads to bizarre outcomes where foolish pensioners invest in exotic and risky cash like instrument's like PIBS instead of 100+ year old investment trusts.

someperson• 11 years ago

people hoard their money in hopes that they can buy more stuff for it tomorrow than they can buy today

The computer and car industries (both manufacturing depreciating assets) seems to have managed over the past decade/century

UK inflation rate turns negative

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