Inflation

The UK’s inflation rate falls to zero. Here is the current scene from the treasury:

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In all seriousness the outcome here is unclear. Firstly, inflation measurements are bollocks and everyone knows that; real inflation for the average person’s expenditure is not at 0.0%. But they do measure something, and that something is worth measuring because it does correlate to inflation. Deflation due to fallen oil prices is absolutely ok. Deflation due to people being reluctant to spend or unable to spend is absolutely not. It’s not clear whether this is entirely due to oil price or whether there’s some fall in consumer demand hidden in there too.

As long as wages continue to grow at around the current rate of 2% or more we are probably ok. If they stall, deflation will become self sustaining. I think the take away right now is that this isn’t what we were aiming for, but while it’s not necessarily bad, we don’t have a particularly strong employment market and sustaining positive wage growth is not something we can take for granted, but on the positive side, temporary deflation is a pretty good thing for most people. So: cautiously optimistic, I guess.

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