The Bank of England may have to cut rates to combat low inflation

[Taf]

The Bank of England may have to cut rates to combat low inflation

http://www.bbc.co.uk/news/business-34291815

Combat low inflation? I thought the game all along was to keep inflation down?

[denphone]

What you have to watch is the risk of deflation which is no good for no one.

Andy Haldane appears to be a lone voice in saying that...

[Osem]

I was only hearing the other day how wage inflation is on the way up with the risk of an overheating economy...

[Chrysalis]

deflation is good for the poor who often dont get increases in income.

I personally certainly prefer deflation to inflation.

Does seem daft when they been trying for years to get inflation down.

Basically tho it depends on your situation.

If you got piles of debt then high inflation is heaven, it devalues your debt. In particular its great for those with a mortgage.
If on the other hand you have lots of savings, then high inflation is bad, it devalues your savings.
If you have a static income such as benefit claimants or a dead end job, then inflation is likewise bad.

Originally Posted by Chrysalis

deflation is good for the poor who often dont get increases in income.

I personally certainly prefer deflation to inflation.

Why am I not surprised ...

Deflation is not good for anyone. When people think the price of a new car, TV or computer will be lower in six months because of deflation, then they are more likely not to buy one because they want to wait for the lower price. Multiply that across a whole economy and you get the mother of all recessions, risk an all-out depression, and watch businesses lay off staff to cut their costs. That works wonders for the poor.

Like it or not, our economic system requires an element of inflation in order to function correctly. There is no reason why this should be bad for people who are on benefits or pensions because, under normal economic conditions, a government should be able to uprate payments annually in order to preserve the real-terms value of the benefit.

Don't think for one second that they would not cut payments in cash terms, if we became mired in long-term deflation, using the argument that the measure was real-terms neutral.

[Chrysalis]

Thats a valid point I guess, although ultimately waiting to see if something gets cheaper is always a gamble.

Take smartphones as an example, its a very high chance they will go down in price when waiting for a while after release day, yet they get pre orders in the 10s of millions and most people buy specific models within a month or two of release.

So whilst I agree "some people who are addicted to always getting the best value may wait, I dont think it will apply to a majority.

As a reference JSA would be at least £15 higher a week if it followed inflation in recent years. Public sector workers are fighting for 1% rise in wages never mind inflation matching rises.

Originally Posted by Chrysalis

Thats a valid point I guess, although ultimately waiting to see if something gets cheaper is always a gamble.

Take smartphones as an example, its a very high chance they will go down in price when waiting for a while after release day, yet they get pre orders in the 10s of millions and most people buy specific models within a month or two of release.

So whilst I agree "some people who are addicted to always getting the best value may wait, I dont think it will apply to a majority.

As a reference JSA would be at least £15 higher a week if it followed inflation in recent years. Public sector workers are fighting for 1% rise in wages never mind inflation matching rises.

Newly released, high-end tech isn't a very good example in this case. Such items are always going to be more highly priced in their first few months of release as manufacturers try to recoup their development costs at the expense of early adopters who are more willing to pay a premium for the latest toy.

Deflation, remember, works across the economy, and it is the affect on expensive commodity goods like computers, Hi Fis, TVs, watches, cars etc, and even certain services like holidays, that overall, has a depressing effect on economic activity.

Re benefits, I did qualify my earlier post with "in normal economic times" - most of the last decade has not been normal, and compared to historic averages, inflation and interest rates are still far from normal.

If public sector workers achieve a 1pc pay rise then that would be an above-inflation settlement, on current figures.

[Kursk]

Originally Posted by Chris

If public sector workers achieve a 1pc pay rise then that would be an above-inflation settlement, on current figures.

An accurate statement but for completeness it should be qualified against the backdrop of a 4-year public sector pay freeze.

Public sector pay is way behind the private sector, on current figures.

This report from the IFS last October contradicts that statement.

http://www.ifs.org.uk/uploads/public.../comms/r97.pdf

Originally Posted by Hugh

This report from the IFS last October contradicts that statement.

http://www.ifs.org.uk/uploads/public.../comms/r97.pdf

Yes, let's all sit down and read through 51 pages to find the bit you're referring to ...

[Taf]

Well I get the idea that the Conservative "Living Wage" is going to do several things: push up prices (and therefore inflation) and push up unemployment. Therefore the increase in wages that the low paid will see, will soon be swallowed up by inflation. And then comes the next increase in the "Living Wage".....

And then the Bank of England might put up interest rates, which could stifle investment in business.

[Osem]

Anyone for a rock or a hard place?

Originally Posted by Chris

Yes, let's all sit down and read through 51 pages to find the bit you're referring to ...

Executive Summary, page 1 and 2

To summarise the summary -

In raw terms, pay levels are higher in the public sector than in the private sector. However, after accounting for differences in education, age and where workers live, the differences are much smaller. Among men, the average public sector pay differential in 2013–14 was close to zero, while among women it was around 8%.

Which contradicts the previous statement

Public sector pay is way behind the private sector, on current figures.

[Kursk]

That report is a year old and can't be regarded as current.