Wikinvest Wire

Deflation is coming! Deflation is coming!

Tuesday, February 17, 2009

Well, "Deflation Week" has arrived and the British are the first to sound the alarm after the government reported that year-over-year inflation fell to just 0.1 percent in January, the lowest level since 1960.

In the U.S., the latest consumer price data will be reported on Friday and we may be in for a veritable "Deflation Tsunami" from the mainstream media since we were teetering on the brink of a negative consumer price index last month.

Naturally, something must be done about it.

But, what?

Run the printing presses of course!

More money must be created promptly because the money currently in circulation is actually beginning to increase in value.

It must be right?

Prices are now falling, so that must mean that money is becoming more valuable than it was before, and if there's one thing governments don't want it's money that is gaining purchasing power...

Sometimes, it just makes you cry to think of what a mess contemporary economists have made of things and it doesn't look like they're going to stop now.

This report from the Telegraph has all the details - there will surely be similar stories state-side at the end of the week:

Politicians and analysts have warned that Britain is on the verge of deflation after economic data released this morning showed that living costs are rising at their lowest rate in almost 50 years.
Liberal Democrat Treasury spokesman Vince Cable said inflation was now "virtually disappearing" as a threat to families, although this might not be obvious to those facing higher council tax bills.

"It is becoming clear that for the foreseeable future there is a higher risk of deflation than inflation, which is why it is inevitable and sensible that the Bank of England should be moving towards expansion of credit and the money supply directly," said Cable.
Economists expect CPI to drop sharply in coming months amid sliding commodity prices and a slowing economy, piling pressure on the Bank of England to take further action to stimulate the economy.

The Bank has slashed interest rates to a record low of 1% and is now considering more drastic measures to get consumers and businesses spending again.

Bank governor Mervyn King said last week the monetary policy committee would discuss "quantitative easing" – boosting the flow of money in the economy – when it meets to decide on interest rates next month.
If you're going to live in the U.K., it would probably be best not to grow old there.

It seems it's the worst of all worlds for "pensioners" as meager interest on their savings is countered by inflation that still runs at about five percent - for them.

Despite falling prices in the government's inflation data, the cost of living for retirees is still rising rapidly due to higher prices for such items as food and electricity.

This is just a horrible thing to do to the "Greatest Generation" in Britain.



staghounds said...

Why should the Government care? Those old people are already dependent on handouts for survival. It's those who are still independent that are a problem.

Anonymous said...

Those darn 'volatile' items such as good, electricity, natural gas prices, etc. Economists wish they just wouldn't exist so they wouldn't have to justify their all knowing models. The problem is some people spend a majority of their income on items that aren't even counted in core inflation measurements. The ranks of those people is growing too.


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