Tuesday, March 24, 2009
No more inflation?
News is that inflation has now reached zero per cent, which means of course that it is no longer inflation. It is the lowest rate for the Retail Price Index since 1960 and could soon become deflation.
None of this is good. Some inflation is necessary to stimulate growth. The only indicator that appears to be growing to any considerable degree is unemployment.
Clearly, the sharp drop in mortgage payments has had an impact on the RPI as Consumer Prices Index and the underlying rate of the Retail Price Index are slightly up.
We are on the edge of a precipice. We wait to see whether government action will be able to pull us back.
None of this is good. Some inflation is necessary to stimulate growth. The only indicator that appears to be growing to any considerable degree is unemployment.
Clearly, the sharp drop in mortgage payments has had an impact on the RPI as Consumer Prices Index and the underlying rate of the Retail Price Index are slightly up.
We are on the edge of a precipice. We wait to see whether government action will be able to pull us back.
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I note that the housing market in the USA has picked up, somewhat ahead of schedule. Our government would be wise to sit on its hands now. Throwing more money at the market could stoke raging inflation later in the year. The RPI hasn't actually fallen.
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