Duncan’s Economic Blog

Deflation, Deflation everywhere

Posted in Uncategorized by duncanseconomicblog on April 16, 2009

Despite the increasing talk of inflation (or even hyper infation) worries, the threat of deflation is high.

Currently the United States, China, Japan, Taiwan, Thailand, Switzerland, Spain and Ireland are all actually in a period of deflation.

Across the Eurozone as a whole the inflation rate is only 0.6% and falling rapidly.

Thank you weak Pound.


3 Responses

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  1. VinoS said, on April 16, 2009 at 5:12 pm

    Indeed. It does seem that, because we import so much, a falling pound will mean there won’t be deflation.

    I do think, though, that the RPI does tend to understate inflation. People on low incomes won’t be benefitting that much from the fall in price of new cars or plane tickets or high-tech gadgets.

  2. duncanseconomicblog said, on April 16, 2009 at 7:31 pm

    Vino, depends on what you think the pound will do. Will it fall another 30%? If not, what happens if will demand doesn’t recover? I’d rather have 5% inflation than 2% deflation.

    I agree on RPI/CPI being skewed. The FT did a good chart showing CPI for the top decile of earners is about -5% whilst it was +5% for the bottom decile.

    That needs to be fixed.

  3. VinoS said, on April 17, 2009 at 5:17 pm

    I agree re inflation being better than deflation, but we need to make sure that the inflation indexes take into account the higher impact of inflation on the poor. Benefits need to go up by RPI + 2% or so per year rather than RPI (or go up in line with average earnings)

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