Deflation

[d000hg]

I going to go there more often. I'll look out for Mister Choco Peanut Choco, 10p/bar does sound cheap.

Tesco own-brand Snickers and Mars are both quite good too.

[AtW]

I know what you were referring to, I was just pointing out that the most common usage is, in fact, incorrect.

It is, in fact, correct.

It's simple matter of maths - increase in prices over period is inflation FFS.

Now you might have something more relevant to you (but not 99% of the remaining population int he world) that you prefer to call inflation, and it is entirely possible that is also correct usage within that context, however as I said inflation for most people is increase in retail prices.

[Ruprect]

This is just more brainwashing from the discredited "establishment" of mainstream economics. The idea that firstly you can accurately measure some kind of average of "prices" in the economy, given the rapid changes in the nature of goods that are actually purchased, and secondly that this inaccurate statistic is actually useful for taking any kind of macro-economic decisions, is one of the great intellectual misadventures of the present time. In the decade leading up to 2008, the thought leaders of economics and politics continuously proclaimed that "inflation" was low and under control and that therefore the "economy" was running smoothly and there was nothing to worry about, and the rapidly expanding asset and credit bubbles could safely be ignored. How did that one turn out?


The "majority of people" also believe they are more intelligent than the average person.

Bit of a mix of cause and effect here methinks

[TimberWolf]

In 1997 a fresh faced Chancellor called Gordon Brown promised he would not allow house prices to get out of control.

Gordon Brown said: ‘I will not allow house prices to get out of control and put at risk the sustainability of the recovery.’
Gordon Brown and broken house price promises - This is Money

And then proceeded to fiddle with housing on the inflation index to make (price) inflation look low. The Tories said nothing during the whole Blair era so are probably co-conspirators.

[Freamon]

It is, in fact, correct.

It's simple matter of maths - increase in prices over period is inflation FFS.

Now you might have something more relevant to you (but not 99% of the remaining population int he world) that you prefer to call inflation, and it is entirely possible that is also correct usage within that context, however as I said inflation for most people is increase in retail prices.

On the contrary, for 100% of the population, "prices" (or rather the particular attempt to measure prices that is known as CPI/RPI and passed off incorrectly as "inflation") is far less relevant than changes in the overall supply of money and credit. They just don't know it. You seem wilfully oblivious to this.

[Freamon]

Bit of a mix of cause and effect here methinks

In what sense? Throughout 1997-2007 the BoE and govt continually trumpeted the fact that "inflation" was under control due to low RPI/CPI, and repeatedly used this as justification to ignore the biggest credit and asset bubble in history, which resulted in the subsequent economic collapse...

[Ruprect]

In what sense? Throughout 1997-2007 the BoE and govt continually trumpeted the fact that "inflation" was under control due to low RPI/CPI,

cause (yours)

and repeatedly used this as justification to ignore the biggest credit and asset bubble in history, which resulted in the subsequent economic collapse...

effect (yours)

Not correct. Indirect relationship at best.

[TimberWolf]

In what sense? Throughout 1997-2007 the BoE and govt continually trumpeted the fact that "inflation" was under control due to low RPI/CPI, and repeatedly used this as justification to ignore the biggest credit and asset bubble in history, which resulted in the subsequent economic collapse...

Regardless of who is right here (as if right has any place in economics), why did they do so? Surely they must have seen house prices rising as clearly as the general public. [Although to be honest I know a lot of people who didn't see anything about houses rising at an astronomical rate as anything to be concerned about, though more titters were forthcoming regarding the official inflation figures, much as they continue to be widely disbelieved today].

[Freamon]

cause (yours)


effect (yours)

Not correct. Indirect relationship at best.

You don't think that low RPI/CPI was used as a justification to ignore rising asset prices (a sign of the credit bubble)? This is what Mervyn King said in 2003:

In the United Kingdom, we have also had to
deal with our fair share of large movements in asset prices during recent years - a 20% rise in
the effective exchange rate in the late 1990s and, more recently, house prices rising at more
than 25% per annum. This, of course, is in addition to the rapid rise and fall in equity prices
during the past five years. Recent Bank of England policy has arguably been similar to that
of the Federal Reserve, which is described by Greenspan as ‘mitigat[ing] the fallout when it
occurs’. It is hard to forecast asset price movements accurately or to identify asset price
‘bubbles’. Even if we could identify them, it is not clear how effectively we could in practice
control them. Greenspan points out that most of the tightenings during his period of
chairmanship were followed by a rise in equity prices, leading to the conclusion that only a
severe rise in short-term rates, and the associated economic downturn, would have been able
to keep the stock-price ‘bubble’ in check.

Basically he is saying that central banks can ignore asset prices and just concentrate on "inflation".

Or you don't think that the asset/credit bubble was a significant contributory factor to the subsequent economic collapse?

[Freamon]

Regardless of who is right here (as if right has any place in economics), why did they do so? Surely they must have seen house prices rising as clearly as the general public. [Although to be honest I know a lot of people who didn't see anything about houses rising at an astronomical rate as anything to be concerned about, though more titters were forthcoming regarding the official inflation figures, much as they continue to be widely disbelieved today].

They genuinely believed that if they could keep an arbitrary measure of the average price of an arbitrary basket of goods (which they called "inflation") at or around an arbitrary level (2.0%) that everything in the economy would be fine and therefore they could ignore the credit bubble, 125% mortgages, the fraudulent mortgage backed securities/CDO market, massive increases in personal debt, 0% balance transfer credit cards etc etc.