The End of Inflation

The End of Inflation

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8 Responses

  1. Avatar Al Cam says:

    Interesting article and I look forward to reading the next two instalments.
    However, whilst it is true that annual UK inflation is currently at relatively low levels (around 2.1% average for the last decade using HMG’s preferred CPIH measure vs about 4% average (using RPI) over all ten year periods since 1915) is it not a bit tongue in cheek to describe this as the “end of inflation”? After all, might not our current national pursuit of “back to the 70’s” also bring a resurgence of 70’s levels of inflation too?

    • Mike Rawson Mike Rawson says:

      It’s not tongue-in-cheek exactly – my point is that what’s already taken place should have generated inflation, and I can’t see any inflation further down the track. Plus we haven’t been able to normalise interest rates and so the regular tools for tackling recessions aren’t available to us.

      So I want to look at what might happen instead (helicopter money / MMT) and whether they might lead to inflation.

      • Avatar Al Cam says:

        OK, but it is worth noting that >20% of all the ten years spans from 1915 have an average RPI of 2.5% or less. Interestingly, most of these periods were during the 1920’s & 1930’s. Whilst I am no economics historian and what we are currently seeing certainly seems unusual (to my living memory, at least) it is not unprecedented. I have separately emailed you a supporting graphic.
        Do you know if QE is unprecedented? If it is, then I suspect this may go a long way to explaining the current unusual inflation figures.

        • Mike Rawson Mike Rawson says:

          It’s not that there are no precedents, they are just ugly ones. I don’t want to think that we are living through a re-run of the 1930s, with WW3 to come as an exit strategy. My main question is what will fix this, and how do we do it without triggering hyperinflation/currency collapse?

          As for QE, my understanding is the US tried it in the 1930s (too little, too late) and Japan had something similar from 2001. So not unprecedented but unusual.

          • Avatar Al Cam says:

            Re precedents, agree totally re re-run of 20’s/30’s with WW3. UK also experienced ten year long low average level of inflation (RPI 2.5% or less) for a few years from early/mid 1990’s too – so thankfully WW3 is not the only possible outcome foretold by historical precedent.

            Re QE, that is now my understanding too.
            And, was it not also the case that in the previous US QE experiment, their economy only returned to “normalcy” (regular economic tools working/behaving as anticipated) after that QE was unwound?

          • Mike Rawson Mike Rawson says:

            2000 to 2009 includes two major crashes/recessions, and we haven’t recovered from that one yet. In the 30s, the US didn’t get back to normalcy until they won WW2 (and everybody else lost). I’m glad you can see happy endings, but I can’t at present.

  2. Avatar Al Cam says:

    I guess time will tell.

    I’m not sure I see entirely happy endings (e.g. BoJo or Corbyn, crikey how did we get here?) but I just do not see that crisis outcome(s) are inevitable.
    For example: a) the levels of UK RPI inflation in the 20’s & 30’s were far lower (and often negative) than now, whilst Germany suffered hyper-inflation b) agree market has not really recovered from the 2000 crash, but that just may mean that there is still room for the market to grow

    My own belief (for that is all it can be) is that a lot of people are prematurely calling time on inflation and much of this is down to recency bias. I can remember the 70’s and the shenanigans of the aforementioned politicians really do in many ways feel like “back to the 70’s” for me. And I would not call that a happy ending!

    In any case, I look forward to your next two articles.

  3. As always a very good report of something that is talked about a lot.
    Inflation is a bit of a bogey man – my elderly relatives still talk about living with 10% inflation and 10% plus interest rates but don’t think for a second that since everyone was experiencing the same pressures, the “modest” house that they paid £20k for back in the day is now worth half a million quid.
    Yet they moan about the fact that they can’t buy milk for less than a pound for 2 litres.

    You’ve maybe covered it before but there is a great disparity between deflation/inflation you can avoid and what you can’t. A good example is music – LPs, cassettes and CDs used to cost a fortune – now they are practically free or cost no more than £100 a year.
    Massive savings
    On the other hand, (take your pick but it’s something you can’t avoid) – our nursery is putting up prices in excess of inflation this year. Not massively but it makes our nursery bill twice that of our mortgage (or 7 times that of the interest on the mortgage).
    Debt cheap, assets expensive, people prohibitive (be it small ones or minimum wage ones).
    Some of that helicopter money would be nice but if you don’t get tax credits from the government, child benefit has been frozen since 2010.

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The End of Inflation

by Mike Rawson time to read: 4 min
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