Tuesday, Jul 14, 2009
Not quite deflation
Press Association: Inflation dips below 2% target rate
Data for June is set to show the Consumer Prices Index (CPI) falling to 1.8% - its lowest level since September 2007 - compared with 2.2% the previous month. RPI is expected to slip further to -1.5%. CPI has been on a downward trend since peaking at 5.2% in September last year, but has not fallen as quickly as forecast. But the steep rises in food and fuel costs last year, with oil hitting $147 a barrel in July 2008, have not been matched this year.
Posted by little professor @ 06:51 AM (408 views) Add Comment
3 Comments
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1. techieman said...
the thing that i dont understand is why everyone on this site thinks that the figures are always adjusted downward - i.e."we" think that the true inflation is always bigger than the actual number. The measure of inflation is pants - for example look at "core" inflation numbers in the US.
Of course we all have different personal inflation numbers - if i spend all my money on itunes and the cost falls then i have deflation, the basket is a basket case. I am not saying that we have deflation per se - i am only saying that the CPI / PPI etc can all have a few errors chucked in (well that would not be a surprise to me). .
Put it this way ... If the government has a choice, wouldn't it always go for a slightly inflationary number? The goldilocks economy. Inflation at a reasonable level, and against the headlining of a deflation rate at all costs ..... for our own good dont you know. If we see a deflationary number then even the sun readers might take a few minutes to stop looking at Keeley and think hmmmm maybe i should wait till next month before i buy that thing or even the month after.
2. paul said...
Not necessarily techieman.
The issue has been clouded by the fact that there's (what used to be called) the 'nuclear option' that is currently being deployed. The problem is that it is just that - a last resort with undefined consequences. So the justification needs to be good but simply isn't there - we all saw the media and Bank of England's temporary switch to using RPI to justify QE a couple of months ago, because CPI was irritatingly above target.
This is the first time in over two years that inflation has actually fallen below target. So all of those rates cuts in recent months, all of that QE deployment was against a backdrop of high inflation brought about by devalued currency brought about by rate cuts and QE.
Think about that.
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