Deflation returns to Britain for first time since 1960

[BelgianMadCow]

Source: Guardian (UK)

Deflation returned to Britain for the first time in nearly five decades last month as prices measured by the retail price index (RPI) were lower than the same time a year ago.

The Office for National Statistics said the RPI was 0.4% lower in March than it had been in March 2008. That was the first negative reading since March 1960, when Harold Macmillan was prime minister and John F Kennedy was running for the US presidency.

On the government's preferred consumer price index measure, which excludes housing and mortgage costs, inflation was still comfortably in positive territory, at 2.9%. CPI is much higher here than the 0.6% figure for the eurozone and economists say the falling pound has pushed up some import prices, delaying the drop in the CPI.

A short period of falling prices should help consumers because it will make their increasingly squeezed income go further. However, if prices continue falling for a long period and deflation becomes entrenched, that can have an adverse effect on the economy as consumers continually hold off making purchases in the expectation of lower prices. This in turn forces firms to cut wages and sets off a damaging spiral.

Read more: http://www.guardian.co.uk/business/2009/apr/21/deflation-returns-rpi-negative

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We are having firebrand sales on everything from clothes to holidays via cars to food here in Belgium. And it's not a sales period. :shrug: Every other firm is advertising "tackle the crisis, we tell you how" and "get more xx for your money" etc.
So I don't feel as if continental europe is gonna be spared. The article ends stating the danger of a stalling economy is bigger than that of inflation. Hooray for quantitative easing! The ECB is also talking about "unconventional" measures - likely the code word for said easing. I was hoping we would not join in that game but alas.

On edit: bad copy and paste, first word in the text is DEflation, thanks Ghost Dog :blush:

[Ghost Dog]

1. Typical Grauniad misprint there,

if you copied straight from the text: Article now reads: "Deflation returned to Britain for the first time in nearly five decades last month as prices measured by the retail price index (RPI) were lower than the same time a year ago."

You can see why the 'confidence' factor, under obvious attempted spin-control at the moment, is significant: It's one thing to see all the 'discounts, 'special offers', etc. as representing a short-term opportunity, so buy now if you want/need to; it's another thing if this is the start of a longer-term trend ... in which case you'd want to wait for lower prices in the future before making any non-essential purchases.

Of course, too many frivolous, non-essential purchases, especially made on credit, and all the pumping/pimping middlemen, have been a big part of the bubble-froth problem up to now.

Confidence? Well:

LONDON, April 21 (Reuters) - The euro jumped to a session high against the dollar on Tuesday on a bigger-than-expected improvement in German investor sentiment, after the pair hit a one-month low the previous day.

But the euro's gains were limited as investors remain cautious about the economy in spite of the survey, and of corporate earnings announcements and the health of banks.

The Mannheim-based ZEW economic think tank's monthly poll of economic sentiment rose to 13.0 from -3.5 in March. It was the first time since July 2007 that the headline index was in positive territory, and beat forecasts for a reading of 1.5.

That helped push the euro higher, which had gained somewhat earlier in the global session as traders took profits from the euro's recent slide.

"Today's ZEW index is good news. However, there is no reason to become overly enthusiastic," said Carsten Brzeski, economist at ING Financial Markets.

"Nevertheless, there are some glimmers of hope...The deterioration of the real economy is slowing down and mixed signals from confidence indicators show that at least confidence is trying to find a bottom."

/... http://www.reuters.com/article/marketsNews/idINLL22187820090421?rpc=44&sp=true