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Deflation

The largest contributor to the current rates of inflation are owner occupied housing costs. These are used to justify maintaining the excessively high bank base rates that are strangling our economy and keeping the costs of owner occupied housing on an upward trend. 

Meanwhile, the following items in the CPI basket are all suffering deflation:

Food and non-alcoholic beverages (-0.4%)

Clothing and footwear (-3.9%)

Furniture and household goods(-3.1%)

Transport (-2.8%)

Recreation and culture (-0.1%)

Restaurants and hotels (-0.9%)

Isn’t it incredibly dangerous for the economy to have all of these essential goods in a deflationary spiral?

Surely the owner occupied housing costs (i.e your mortgage) are high because of the high base rate and are only going to increase as more people come off historic fixes and have to re-fix at a much higher rate. How can that justify keeping the high base rate when the increase in these costs is directly linked to the base rate?

prices are falling because certain items rose in price due to extraordinary factors which are now easing.   All the items you list would have had to contend with extraordinary high energy costs.

The largest contributor to the current rates of inflation are owner occupied housing costs. These are used to justify maintaining the excessively high bank base rates that are strangling our economy and keeping the costs of owner occupied housing on an upward trend. 

Alexa, show me who has a big mortgage.

analysis needs 2 b reserved as i understood that the l7est figures moment incorpor7 january discounts, so u get a falsely low figure until it evens itself out l7er in the year

either way, this is entirely down 2 tozza mismanagement. their governance has been an economic, financial and business disaster 4 the uk, and they r solely 2 blame. not at all helped by their rampant corruption and years pandering 2 putain

tozzas out now chz

Exactly le chuck.

Meanwhile people are not spending as much in the real economy leading to discounting. Which puts people off spending because why buy something today that will be cheaper tomorrow.

was on Ocado last night looking to buy some fillet steak and saw a Hawksmoor one, 400g.. £27

Seriously?? for that kind of money I expect it to arrive cooked to my liking with all the trimmings and a glass of wine.

What Guy said. There is some deflation at the moment in some items due to specific short term supply issues resolving. That is very different to structural deflation due to weak demand and indeed it is a very welcome thing given the cost of living crisis.  

 

AmItheSucker 14 Feb 24 11:15

These are used to justify maintaining the excessively high bank base rates that are strangling our economy

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sorry, not fcuking sorry but if the economy can't handle 5% interest rates there is something seriously wrong, there is nothing to be gained long terms from continuing to have 0% rates, this always had to normalise at some point

I went to a Lidl for the first time ever last weekend to see what all the fuss was about and was tempted by the own brank fillet steak but didn't go for it at the time.  I shall take your advice as it was half the price of anyone else.  I'm very fond of Tesco fillet steak as it is always good quality but the price has gone up dramatically and the sizes have shrunk

Deflation has for some time been a far greater real macroeconomic risk, globally, than inflation

this has been obvious, but shrieking monetarist w**kers control policy

"I went to a Lidl for the first time ever last weekend to see what all the fuss was about and was tempted by the own brank fillet steak but didn't go for it at the time.  I shall take your advice as it was half the price of anyone else.  I'm very fond of Tesco fillet steak as it is always good quality but the price has gone up dramatically and the sizes have shrunk"

 

They have two price points Eddie (although both cheaper than anywhere else) I tend to go for the slightly more expensive one (green label rather than red label from recollection)

I shop at Ocado because they are the only ones who sell Denny's Gold Medal sausages in this country and rather than buy that one item, i make it a full grocery shop to hide the fact that I'm ordering 20 packs of that one item...

I'm not sure on the detail on some of the items in the original list, but labelling it "deflation" is a complete misunderstanding of how inflation figures work.

On food, there was a month to month fall in prices, ie in January the rate of increase across the board was 0.4% smaller than it was in December, but overall, food prices are still over 10% higher than they were a year ago and are still getting more expensive month by month, but are doing so at a slower rate than they have been.

Dairy is the only sector across food and drink generally where prices are falling compared to a year ago.

There would have to be significantly more monthly falls in the inflation rates for various food items for prices rises even to level off, let alone head into deflationary territory.  That is also the position in the clothing and hospitality sectors.

and if any of you mofo's start ordering Denny's Gold Medal from Ocado and causing them to reduce my orders (again), I'll track you down and it won't be pretty!

I am not sure the annual inflation rate published monthly is particularly helpful in times of rapidly changing inflation as it arbitrarily compares two snap shots in time a year a apart.   To see what is happening  monthly changes in prices are far more relevant provided one makes the necessary seasonal adjustments.

Why is no-one focusing on the real issue here ?

The best steak to buy at Lidl is the 30 day dry aged Hereford ribeye. £4 for an 8oz. RR can buy 2 and squish one on top of the other in the pan.

I thought we were in an overall deflationary period due to the baby boomers all retiring, restricting spending, and cashing in savings and investments. The generations coming through just do not have the same level of spending power. Add in AI and automation and it compounds.  

Everything except housing is now shrinking. New inflation rates out today and there are large deflationary impacts from food and non-alcoholic beverages, and restaurants and hotels, communications and other consumer items and large inflationary inputs from housing.

The BoE have gone way too far and need to cut rates today.

as observed by laz, deflation was always the primary risk in this macroeconomy, and has been greatly and potentially disastrously exacerbated by central bank overreaction to a modest and demonstrably temporary inflation spurt

I'm not sure we are reading the same report

Prices for food and non-alcoholic beverages rose by 5.0% in the year to February 2024, down from 7.0% in January. The February figure is the lowest annual rate since January 2022. The rate has eased for the eleventh consecutive month from a recent high of 19.2% in March 2023, the highest annual rate seen for over 45 years.

Prices rose by 0.2% between January and February 2024, compared with a monthly rise of 2.1% a year ago. Prices have been relatively high but stable since early summer 2023, rising by less than 2% over the nine months between May 2023 and February 2024. This compares with a sharp rise of around 22% seen over the previous 14 months between March 2022 and May 2023.

The lag (Deutsche Bank calc - quoted in FT) of the impact of BOE interest rate rises means currently we're only seeing 60-70% of the impact. The full impact won't be felt until Q1 2025, so there's still some way to go. 

With inflation falling and the full impact of the BOE's rate increases yet to be felt, there's a decent chance of deflation in 2025, which would be an absolute disaster. 

Laz is right that the interest rate rises were entirely unnecessary, as are their quantative tightening measures. They're incompetent. 

I'm not convinced Ami knows the difference between deflation and reduced level of inflation. Current stats only show deflation in a few areas (energy, vehicles, household appliances)

Yes, I had a look at the figures and couldn't understand what Aml is on about either.

CPI should be under 3% in 2 months given the decent index increase between Jan and April last year.

Looking forward to some deflation and being able to finish the renovation jobs on our house. Prices still way too high. A couple of years deflation is fine by me.

Suspect it wont last long though. As soon as we come out of recession next year with a stable labout govt the economy and prices will boom again.

 

Eddie - have you tried Kissane sausages???  OMG!!!  They are delish.  Supervalu ran out one day because the Kissane sausage machine had broken.  So sweet that a supermarket would know this.  I was most upset.

Canary Worf20 Mar 24 11:34

Suspect it wont last long though. As soon as we come out of recession next year with a stable labout govt the economy and prices will boom again.

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kinda feels like the global economy might be on the cusp of turning, covid and ukraine war energy shocks finally worked through the system 

and the UK losing the dead hand of a zombie tory government wouldn't hurt of course 

I do wonder how China's deflationary pressures will impact the world economy for the next year. 

Rachel Reeves going on about Supply Side Reforms is concerning. 

What supply side reforms are concering? Regardless of everything  else we do seem to be failing miserably on the supply side. Especially land and labour. But also quite a lot of nonsense compliance red tape etc (not all; but quite a lot). It would also be good if we could sort out our energy security.

I am but a layman, but I can't personally see how it's possible to go through a global pandemic followed by huge inflation followed by relatively huge rate hikes and for things to essentially be back to normal over the next few years. This "soft landing" narrative everyone is going for seems a bit premature?

I think we can see you're a layman because you were gleefully looking forward to higher rates a few months ago. 

The UK govt, which famously refused to borrow to recover from the GFC, borrowed £400bn it never planned to to fund the pandemic giveaway. The BoE lowered interest rates at the same time, fueling an inflation bubble as a consequence of the inflated money supply. The effects were amplified by Russia invading Ukraine and supply chain disruption/producer and retailer gouging. 

The BoE missed its window to deflate the bubble by raising in early 2021. It has now overtightened through interest rates, and is compounding this with selling off the securities on its balance sheet. This to an economy, unlike the US's, that is in the shitter thanks to Brexit. There will be no soft landing here (unlike the US). This year will bring a v hard landing. They have totally fooked this up, but as it's hard to get blamed for doing nothing with higher rates they will just keep doing it.

And in the full knowledge that Blair inherited an improving economy from Major, they ain’t making that mistake again, Starmer will get a country right down the shitter. 

borrowed £400bn it never planned to to fund the pandemic giveaway

Don't disagree, but there was also £77bn lent by commercial banks in government guaranteed bounce-back loans. I wonder whether there was an outsized impact on inflation from those loans v. the government money creation. 

I don’t think it’s fair to say I was “looking forward” to higher rates, I was just saying I didn’t think they would come down as quickly as people thought 

Yours is a good post though

Dalek20 Mar 24 18:56

Nothing to do with brexit banana. That’s why Germany etc are in recession

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"nothing"

excellent lying and desperate misinformation there 

you might have gotten away with "very little to do with Brexit" but nothing, absolute nonsense

energy, vehicles and household appliances are massive, massive areas of the economy

the latter has been subject to savage price slashing for ages now. I got a £2000 fridge for £1100

OOH costs are the costs of housing services associated with owning, maintaining and living in one's own home and are an important component of household expenditure that are not included in the CPI.

 

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