Monday, October 12, 2009
Roger Bootle wrote "The Death of Inflation" so perhaps his mind is a bit fixed, but he points out that globally prices have fallen more than the UK, we have only been spared through sterling devaluation. Also, he points out that in developed Western societies (he doesn't mention the UK specifically) underlying productivity growth is 2%, from that he suggests that any wage growth less than 2% is deflationary. Fair enough. The 2% value rang a bell though because that has been our inflation target, in which case with our productivity growth, we have been following a zero inflation policy? Doesn't mention asset prices or debt. Conclusion is deflation will be waiting in the wings over the next few years.