inflation

Is zero inflation a good thing?

Is zero inflation a good thing?

In the UK, CPI inflation has fallen to 0%. Is this a cause for celebration or a cause for concern? Firstly the government set an inflation target of CPI 2% +/-1 for good reasons. The fear is that if inflation is too low, we may start to get problems associated with deflation. More details here About the problems of deflation. But a quick summary: Rising real value of debt. With low inflation, it becomes harder than expected for people to pay back…

UK Inflation Rate and Graphs

UK Inflation Rate and Graphs

Current UK Inflation Rate CPI inflation rate: 0.0% (headline rate) (page updated 25 March, 2015) Source: Raw data General inflation tables | CPI annual % change D7G7 at ONS What is causing the fall in inflation? Lower cost push inflation – falling oil prices Other commodity prices also falling, such as metals, food. Lower energy prices – gas and electricity Low worldwide inflationary expectations. Europe is experiencing deflation and this is keeping inflation low. Supermarket price wars, with big chains, such as Tesco and Sainsbury attempting to maintain…

Long-Term inflation forecasts

Long-Term inflation forecasts

Reader’s Question: What will be the inflation rate in 2020? Firstly, I can’t resist a few economics ‘jokes’ “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. “ “The First Law of Economists: For every economist, there exists an equal and opposite economist.” The Second Law of Economists: They’re both wrong. Q:Why did God create economists ? A: In order to make weather forecasters look good. Funny Economics To be honest, it is very difficult to make inflation forecasts for more than 12-18 months time. I feel…

Prices rising, but inflation rate down?

Prices rising, but inflation rate down?

Readers Question: Would it be possible for a nation to claim that is reducing inflation rate successfully through economic measures,  however at same time is allowing increase of commodities prices such as bread, meat, and etc… Firstly a fall in the inflation rate, means prices are still rising. Just at a slower rate. For example in late 2008, the UK inflation rate was falling from 5% to 2%. Prices were still rising at the start of 2009. Two useful definitions Headline inflation rate – measures the…

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Inflation target during deflation

Readers Question: How does inflation targeting operate when there is a deflation? and what are the problems associated with this? It’s a good question to ask at the moment, especially with regard to the ECB and Eurozone. Firstly, the EU inflation target is – below but close to 2%. If inflation falls below 2%, the Central Bank should pursue a loosening of monetary policy – lower interest rates (if possible), quantitative easing and allowing the exchange rate to fall. The ECB state By referring to “an increase in…

Problems of Deflation

Problems of Deflation

Deflation is defined as a fall in the general price level. It is a negative rate of inflation. It means the value of money increases rather than decreases. Deflation is not necessarily bad, but often periods of deflation / low inflation can lead to economic stagnation and periods of high unemployment. This is because deflation can discourage spending because things will be cheaper in the future. Deflation can also increase real debt burdens – reducing the spending power of firms and consumers. In the twentieth century, periods…

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Does inflation cause unemployment?

Readers Question: Does inflation causes unemployment? There are a few different scenarios where inflation can cause unemployment. However, there is not a direct link. Often we will notice a trade off between inflation and unemployment – e.g. in a period of strong economic growth and falling unemployment, we see a rise in inflation – see Phillips Curve. Also it is important to bear in mind, (especially in the current climate) If the economy has deflation or very low inflation and the monetary authorities target a modest rate of…

eurozone inflation

EU inflation and deflation

The Eurozone inflation rate is 0.4% (ECB database)  (Sept 2014) Eurozone HCIP inflation rate HCIP (Harmonized consumer index prices) Source:| (ECB Inflation graphs, sometimes a few months outdated) Food inflation Food inflation is currently negative. Food inflation tends to be one of the most volatile components. This negative food inflation is one factor reducing the headline rate. Reasons for low inflation in the Eurozone 1. Temporary factors – lower food / energy prices….