Tuesday, May 19, 2009

United Kingdom Deflation Alert

Bloomberg reports:

U.K. inflation slowed more than economists forecast in April to the weakest level in 15 months as the recession undermined price pressures in the economy.

Consumer prices rose 2.3 percent from a year earlier, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 28 economists was 2.4 percent. The retail price index measure of inflation dropped an annual 1.2 percent, the most since records began in 1948.

3 comments:

  1. This is disingenous...y/y is negative b/c of base effects relating to last year's surge in energy (and food) prices...

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  2. Why is deflation limited to prices alone? We've been in deflation for a long, long time now. How else can we explain the 45% loss in world wealth, the unemployment, dramatic cuts in imports/ exports, falling house prices and stock prices.

    Inflation is the NET expansion of money and credit.

    Deflation is the NET contraction of money and credit.

    I can use credit to purchase a house as much as I can use my savings. The easy credit allowed far to many people to bid for that house hence raising prices artificially. If we want to account for inflation/ deflation we must take into account credit marked to market and not fantasy.

    So using the correct definition of deflation taking into account all the money supply, the UK has been in deflation for more then a year now and it's only going to get worse.

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  3. i understand what you are saying in theory, but in my opinion cash and credit are not the same (though i do agree that too much credit creates price inflation). buying a home with cash means you have 100% of the equity. buying on credit means you may think you own it, but as too many people have found out, you do not.

    this is the reason why providing cheap credit to homeowners will not work in the long run. in the long run real price levels matter.

    http://econompicdata.blogspot.com/2009/02/bailout-shelter-not-investment.html

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