UK inflation rate turns negative
bbc.com
bbc.com
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.
The greatest trick the keynesians ever pulled, was convincing the world that some inflation is healthy, and all deflation is cause for fear.
The greatest trick the anti-Keynesians ever pulled was selling governments on the nonsensical belief that sado-monetarism is ever good for anyone who isn't already extremely rich.
As opposed to 80-100 years of devaluation of the money that you earn, save and spend?
A stated above 'the greatest trick the Keynesians ever pulled off was making everyone fear even the slightest deflation, while convincing them that year-in, year-out inflation as not only natural, it was a good thing.
The main benficiaries of inflation are the people who get to spend the newly minted money first - because they get to use created money to buy assets at the valuations for the existing amount of circulation. By the time the inflation works it's way down the chain, your cup of coffee has jumped 50c but you haven't had a commensurate increase in income.
You can imagine the will reading "I leave my Rolex and and the remaing 40 years of my mortgage to my son/daughter"
The US dotcom bubble imploding was also not deflation.
Japan got a real estate bubble from extreme monetary expansion flooding into the economy in the 1970s and 1980s. They got a popped bubble when that fake economic party ended with monetary expansion falling to single digits in the early 1990s. The reduction in that rather massive monetary expansion forced their economy back to reality.
The US real estate bubble occurred in part for the same reason. The Fed juiced the economy after 9/11 to attempt to avoid a recession.
When reality hit, Japan shifted to accumulating vast amounts of debt to fake a better economic condition than what they really had. That overwhelming debt has continued to drown their prospects as the years go by, sapping growth potential.
You can see this same exact scenario playing out in China right now.
A bubble imploding is not deflation, just as price contraction on the CPI is not inherently deflation.
See: flat screen tv prices, computing prices, etc. The US enjoyed decades of general price stability and contraction due to vast automation and economies of scale after the civil war, none of which was deflation (monetary contraction).
Eventually the stark failure of borrow and spend 'stimulus' policies will get through. Maybe after another few decades of wasted economic opportunity and stagnation.
For this reason, central banks will run interest rates down to juice more inflation....oh wait...they are already at near zero...
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
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.
But when they where added to the index they where a lot more expensive than now - which is one sneaky way you can fiddle the inflation figure.
So you deliberately add to the basket of goods a device (that you know will deflate) at say £200 10 years later its now £25.
Makes inflation seem less than it really is.
I think that is fundamentally wrong aside from the few digital nomads that wander internet cafes with their laptops.
DVDs and cell phones and bicycles and such are very cool. No doubt about it. But they are toys. Productivity boosting toys perhaps; but housing is essential... housing isn't just productivity boosting. Without it you cannot own anything you cannot carry on your back.
I would choose a country home with a few books and a log fire over a city flat with a supercomputer. Wouldn't you?
(Hell, if we believe in the market, the fact they are more expensive is a statement that they are indeed more valuable!)
No, the argument is that the inflation rate is not the same as the cost of living index.
If the majority of people are at income / wealth levels that mean their personal inflation rate is the cost of living index, then the general rate of inflation should be equal to that. It is literally an expression of what money is worth to the people for whom money is anything more than a metagame token.
(Compare with median vs mean income. Mean income really doesn't mean much, especially if you exclude the unemployed.)
Either that or we really need to reconsider what inflation is used for. The idea of it being used as a sort of way to determine 'real returns' is broken if most of the things people care about are left out of the index or demoted in weighting.
Even a wealthy person does not have 0% inflation in the UK. They are probably buying flats in London or similar, which are going up in price all the time. How is that not inflation? Your money buys less... inflation is (should be) a measure of that.
Toys really do not make up vast proportions of the expenditure of, well, anyone.
Sure, and that's why the basket of goods is weighted according to much of them are purchased
If inflation is 0% then it is not weighting correctly when the vast majority of expenses are rocketing.
That's basically the point. Anyone 'on the ground' that actually tracks their costs knows this very well.
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...
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.
Food is not expensive. It is expensive when you have already spent all of your money on housing and transport, obviously. (It is about 10% of min wage in UK).
That's kind of the point I'm trying to make; if housing is cheap then inflation is actually a reasonable metric. If it takes up most of your income it is really just a measure of 'how much the things you already cannot afford are increasing by'.
When you have a stable home, spending money is fine! Until you do, every pence spent is just taking you further away from that stability.
That's not a healthy sign, and I don't think that was the fault of "them". Individuals did that.
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.
Renting would have to be a LOT! cheaper than owner occupiers to make renting a rational decision.
But if all these are true, then, sure, you should buy your own place.
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.
Can London really continue to have an interesting tech scene under such circumstances? Tech wages (outside the financial sector) are around £30k-£60k.
I'm living in zone 2, and rent is £1,300 for one bedroom flat.
http://www.telegraph.co.uk/finance/yourbusiness/11390230/Bou...
Identify how much spending you can postpone until next year.
Reflect if a deflationary spiral is even remotely likely.
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.
http://www.tradingeconomics.com/japan/inflation-cpi
You can say they have had net inflation if you pick your time range correctly, but the graph shows spurts of deflation followed by spurts of deparate inflation via QE that doesn't solve the deflation.
Google "Japan deflation" today and you'll get articles from yesterday describing how they are still trying to fight this problem.
Here's what Japan had:
1) Too much monetary expansion in the 1970s and 1980s, leading to bubbles in both real estate and the stock market.
2) When monetary expansion slowed down, they suffered the popping of both of those asset bubbles.
3) In response to that fake boom ending, they turned to accumulating debt.
4) That debt has led to protracted stagnation for ~20 years. Which has now led to currency debasement to devalue that debt, because it's consuming so much of their budget, and the the central government can no longer borrow from Japan's savers (because their savings rate is non-existent now).
There was deflation in Japan, caused by deflation of the asset bubbles.
There was no deflationary spiral as defined by the scaremongers.
Japanese banks should have failed, and debt holders should have been wiped out for making bad lending decisions.
Such things are painful but they are forgotten over time.
Instead continual debt increases and government boondoggles have made the economy dead for 20 years.
A resurrected corpse after some hardship is better than a zombie economy.
I'm not sure about you, but I've always called that 'saving'
Hoarding is something like but not quite exactly the same as saving.
Which is a ridiculous argument because it's always true (or at least has been for 100+ years).
It's very easy to find safe investments with greater returns than inflation and it always has been, has it caused a hoarding problem?
Great returns come with great risk.
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.
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.
The computer and car industries (both manufacturing depreciating assets) seems to have managed over the past decade/century
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.
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!".