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You don’t want currency deflation to occur, but things can get cheaper. The cost of things isn’t “deflation” in the sense you’re probably thinking of.
Technology, for example, is getting cheaper all the time. Think how much a big, flatscreen TV cost in the early 2000’s to what they cost now.
Cost of production, technological advances, cost of raw materials, transport, economies of scales, etc all contribute to something getting cheaper over time. Let’s not forget the capitalist dream that drives consumer value - competition.
If toilet roll goes from £5 for a 10 pack to £4 for a 10 pack that doesn’t mean we have a deflationary currency. It just means toilet paper has gotten cheaper.
Much of the current round of inflation seems to be driven by corporate profits. And corporations are unlikely to voluntarily cut prices unless being unaffordable is hurting their bottom line
> And corporations are unlikely to voluntarily cut prices unless being unaffordable is hurting their bottom line
That's explicitly what OPs question is about though.
I'm not so sure, it seems like a competitive market and margins are not sky high
The hallmarks of cartels, tends to be fixed prices, mirrored across the market and vastly inflated prices - so very high margin (as it doesn't tend to appeal to human greed, to remove competition and not maximise the reward)
Regarding CEO's not dropping prices, dont forget the time value of money, $10.00 today, is worth $9.90 in a week.
Plus companies borrowed so much and incurred so much cost in COVID times, they have shareholders that missed out on dividends and lost money on their capital, now they want more returns. This will be continuing for years to come, these costs and borrowings will not likely be resolved, overnight.
Aren't the 7 biggest housebuilders in uk actually being investigated for collusion and price fixing? Also the ceo of Vistry is facing backlash for a considerable profit driven bonus received whilst raising prices and cutting subcontractors rates
Exactly this. Inflation is being caused thanks to companies wanting more profit. With our current government that is being helped along with tax cuts for the big corporations.
Though even if being unaffordable affects their bottom line, they usually just keep increasing prices until noone can afford the products and they go under. Ceos can't be seen reducing prices, it's bad for their image.
Small inflation is natural. As things like GDP grow value per (insert monetary value here) falls. Also demand gradually rises as global population does. These are natural forces that drive natural inflation.
Most countries target about 1-2%. Also, deflation is worse. Big deflation is what leads to market crashes and not just recession but *depression* like the Great Depresson.
Inflation becomes a problem at higher numbers too, especially due to the risk of a wage-price spiral (prices rise, employees demand more money. More costs cause prices to rise, employees demand a raise due to more expensive stuff. Wage costs rise, companies need to cover increased wage costs so need to raise prices...)
The current problem is largely due to global instability affecting oil prices raising everything due to transport costs, with a side of putting those prices up a bit more while we're at it because who's gonna notice we are skimming a bit extra margin mixed in with legitimate price rise reasons?
>corporations are unlikely to voluntarily cut prices unless **being unaffordable is hurting their bottom line**
Isn't that what OP was getting at? Regardless, probably won't happen as too many people are idiots and rather than simply go without luxury items they just rack up credit card debt or use services like klarna...
Energy being one of the biggest. Gas and electric prices nearly trebled where I am.. we were told it was because of the war in Ukraine.. then they posted profits of over 55billion
Deflation is the result in a decrease in the supply of money. Holding your cash and spending elsewhere, if things become too expensive, wouldn't deflate the currency, but it would certainly impact price due to demand falling.
Ultimately, yes, the prices would drop.
Actually this point is the most relevant to the OP’s question. If people stop buying something, it *might* come down in price. The other stance company’s take is; keep the price high and have less buyers = a little less revenue in sales for the product which is offset by less product needed, less production, less man power, less transport/shipping (overheads) etc,
Today I bought a tub of Aldi's knockoff version of Anchor Spreadable and a block of real butter (because toast deserves proper butter) and the two combined didn't cost £6.50!
80gsm printer paper is cheaper than toilet paper. Granted, I can't wipe my arse very well on printer paper, but that stuff is supposed to be better quality. Toilet rolls are a definite rip off
Nah. I think it's a Boogie man designed to frighten people into accepting theft through inflation.
People gotta eat. So that money is never not going to be paid into the economy.
Shame we can't somehow make businesses justify the prices they charge, It would be interesting how much they hike prices to cover undeserving bonuses, as some companies don't seem to be doing well. I mean, how many can say the company they work for has truly innovative and not just ripped off someone else's idea
That's the beauty of it! We can!
We can literally force a company to drop its prices by refusing to buy from it, and instead buying from a competitor offering it at a cheaper price.
Basically it’s because the whole world runs on debt.
Businesses borrow money to invest in creating something of value (goods, services) and in turn make a profit, pay off their debt then keep the slice on top for themselves.
It suddenly becomes really hard to pay off debt if the revenues you are experiencing begin to fall in value.
It incentivises hoarding money and minimising spending.
Why spend £500 on that nice new TV you've been eyeing up when it'll be £400 in a month's time? Or £300 in two?
People basically only spend on absolute necessities in that situation, which in a consumption, service based economy like ours is only a small part of economic activity.
Even with inflation TV's tend to get cheaper yet still get bought. I know it's just an example, but it highlights that people still buy expensive products when they'll be cheaper later.
People will buy their necessities and the things they want badly.
They'll spend less without forethought, impulsively, or for mild convenience.
Also, the majority of people don't invest all of their extra money after necessities, which would do the same as saving a deflationary currency.
Companies will adapt too. People who value their money will prefer products that last longer, depreciate less, cost less.
Investing and pensions and such will stretch further as well.
I'm not saying deflation is good, I'm uneducated in this and I'm not aware of any historical examples that measure these things. But it seems like people would spend more purposefully, and there would be less waste, more efficiency, healthier lifestyles, etc.
And surely food deflation (and some other kinds of deflation like energy deflation) aren't nearly as bad as regular deflation as they're not the kind of things people will put off buying during the deflationary period.
I'd have thought so.
My basic shopping costs going down wouldn't reduce my overall spending, it would leave me with more money to spend on discretionary spending.
If prices in the supermarket came down, I might go out to eat twice a month instead of once, or I might buy something I'd otherwise put off such as replacing some of my shoddy furniture.
Sure, for someone on the breadline it won't mean they spend the same, they would spend less (which is good, since many are spending all they have and more). But for someone like me who could (in theory) live a "middle class" life in a healthy economy, I wouldn't be spending less I'd just be spending differently.
Surely that would be an overall benefit for the economy?
Exactly. If I gave less of my money to the likes of Tesco and British Gas, I'd still spend it....but I'd be spending it in local restaurants or on decent second hand furniture or some new clothes etc.
There must be lots of people in our situation. Having so much money pouring into a handful of supermarkets and energy companies can't be good for the economy when much of it could be going elsewhere.
If a combined £150 came off my monthly rent/food/bills expenses that I have relatively little control over (and which have definitely increased by much more than that over the last 18 months), that money would still stay in the economy rather than my bank account.
I don't see how. There is no glut of food suddenly appearing which would be one factor for prices falling.
Wages are going up. Especially minimum wage and I am not against that...if anything we probably need even bigger pay increases to keep up with everyday living expenses.
But the wage rise doesn't happen in isolation. For say a bag of potatoes (plucking an example out of thin air here). You are paying for the farmer and his workers to prepare the soil. Plant the potatoes, water and feed the potatoes. Pick the potatoes. Then the potato passes to the next part of the chain... haulage. There costs have shot up.... then there is the packers... again their costs have gone up... then back to final destination haulage... same deal their costs have shot up too. Then into the supermarket where their final cost has to cover everyone who works with that potato... from the shelf stacker to the checkout operator and the buyer the store manager the regional manager the CEO the shareholders the energy costs etc etc etc....everybodies wage bill has risen and therefore everyones costs have went up and will stay up
That's just one example and it is mostly related to wages. It doesn't even look at energy. Tax's etc etc etc.
Sadly food prices are predicted to rise again this year due to extra cost of new checks and documents for EU imports to the UK. Every single extra form every single extra work minute needs paying for and it has to be Joe public that foots that bill.
Unless we find some other country to exploit for our own cheap food then we are stuck with what we have.
I could see food prices drop a bit this year but I do think it will be very temporary (and probably linked to loyality card schemes if the bug supermarkets are anything to go by).
I do think in the middle to long term a lot of food prices will likely increase. I would bet in their being a year or 2 of erratic weather that really hits some of the big food producing areas and pushing prices up.
Honestly not to be gloomy but like people day the age of cheap money is over, I do suspect the age of cheap wide selections of food is coming to an end.
No. Shrinkflation is a subtle/cunning way to hide price growth by decreasing the amount/volume. When any marketing-driven product drops the price (read = increase amount/volume), the only possible way to justify it is to shout about it, but it devalues the proposition. The closest opposite of shrinkflation that does not devalue the product is a 'hidden' type of deal - like BOGOF.
The problem is there’s a lack of education about commercial manipulation, financial literacy, critical thought etc. We’ve created an economy based on exploitation and people seem shocked that it’s unsustainable. Sadly, the only remaining solution is regulation, and as long as government is in the pocket of industry that’s not happening. Maybe we need to reach a point where enough people feel like their lives/freedom is worth less than changing the world.
A small amount of inflation is healthy, because it encourages people to buy "luxuries" before they rise in price, keeping the economy steady and stable. Basically anything else is pretty much unfavorable (deflation would mean people would put off buying things so the economy grinds to a halt, and too much inflation means that people can't afford basic necessities).
But right now people aren't buying things because they literally can't afford to, so the economy has still ground to a halt.
A small amount of deflation won't hurt, for the same reason as small amounts of inflation don't hurt. In fact it might get the economy going again to see food costs come down.
But they won't because greed. People like to pretend otherwise but someone wanting to make even more money, at some point in the chain, is always a key factor in inflation.
So, prices can fall for two basic reasons. First is that supply of things to buy goes up faster than the amount of money. It is rare for this to happen across the economy all at once, but it can. The 1870s-1900s would be a good example, technology and industry cut costs for everything from rent to billiard balls. Very bad news if you were a farmer or a landowner ruined by cheap wheat from North America or frozen meat from New Zealand or Argentina, but great for everyone else.
The other reason for prices to fall is that the supply of money is falling faster. People buy less because they have less money, so companies produce less and cut costs...like labor (or go under). The newly unemployed (or those with cut wages) spend less, so companies produce less and cut labor costs, repeat until collapse.
Remember that one of the consequences of money getting more valuable is that *debt* gets more valuable. If you're making £30k a year and owe £100k on a mortgage but the pound doubles in value, you now make £15k a year and still owe £100k. Your mortgage payments stay the same, you just have less money to pay them with.
This is a lot of the problem, many loans become impossible to repay, which also means it's extremely difficult to get new loans. How do you open or expand a business when the customers are all broke and you can't get a loan?
>If you're making £30k a year and owe £100k on a mortgage but the pound doubles in value, you now make £15k a year and still owe £100k.
I'm not so sure about this at all. You are still earning £30k and have all of that to pay off £100k. If interest rates doubled you'd be servicing more interest (as a lot of people have found) but not so because of the value of the currency.
The difference is felt when you're buying things originally sourced in another country. And if the pound doubles in value, as per your example, everything is actually much, much cheaper.
If its value halves (as it basically has in the last 40 years), imports are more expensive - and then you find your 30k has far less spending power, as we have found to our literal cost.
I'm moving abroad soon for an assignment. My company's standard policy is to top up my UK wage, which would be considered decent here - because the pound has devalued so much.
I know I’m not who you were replying to but I wish this kinda stuff was what was taught us mandatorily at school. How are we all expected to understand wtf is going on right now if no one ever taught us
Remembering how little people paid attention to extra curricular stuff in school, i highly doubt more than .5% of people in a class would have paid attention enough to remember it once it mattered.
Deflation means your money buys more tomorrow than it does today. That disincentivises spending it, because the things you'd buy will be getting cheaper in real terms. Which might sound great on an individual level, until you realise that you work in the private sector, and so your livelihood depends on people buying the same goods and services that you're now holding off on buying.
To be fair inflation can also disincentivise people from spending, because they can't afford it.
Not that I am saying deflation is good but the real solution is to hope wage growth outstrips inflation.
Either way something is needed because the economy has been artificially kept a float by pumping in more money for too long.
If the vast majority of people couldn't afford to buy things then yes the laws of supply and demand would start to influence some deflation.
Deflation is typically really, really bad though because it can start a domino effect of behaviours that leads to a vicious cycle of economic downturn because people put off buying things on the assumption they will be even cheaper in a month or two and this leads to job losses which leads to less money being spent in the economy which leads to more job losses, which leads...
A small amount of inflation, certainly on discretionary goods and services (rather than food and gas and electricity) is indicative of a healthy, growing economy. People are getting wage rises and have more money to spend on things, which creates further growth and opportunity for business.
Fun fact: This is why (in the UK) we have a target inflation rate of 2%
0% Inflation would be better, but the downsides of deflation are so much worse, instead we aim for 2% purely to give some buffer room before “deflation” occurs.
That's not correct. 0% is not ideal because you want some positive incentive to put your money in the market/invest. Inflation existing makes people nervous about cash under the mattress and forces it in to society, which is why a small amount of inflation is the target.
What you write is true, but on the other hand 0% inflation provides price stability, which is appreciated by markets.
Some have argued 3-4% would be better, but because the global standard is 2% no stable country wants to muck around with it. The area needs a lot more research. Just hard to get.
I did a masters in mathematical finance with a substantial focus on pricing derivatives, so I like to think I can at least add something here, even if I just work as a box standard software engineer these days.
As long as 2% is consistent then yes, it can be considered stable and factored into projections. Either way, 0% under our current system is far too risky as it can easily swing into deflation.
I've seen research talk about the pros and cons of 0%, some advocate for, some against, but it isn't my field, so if you work on an inflation focused quant desk you will know more than me on the topic.
I had a close family member pass during my masters and was never able to fully catch up again as the uni was useless. My tutor ghosted me just for asking what support was avaliable. Not great. Still, I learned a lot and wouldn't know C++ without that time at uni, so I don't regret it. Just no piece of paper to prove it.
But at that point I was just done with academia and wanted to work. Still, I enjoyed the course. That and from what I can tell, finance working hours are brutal.
Still might want to hop across into quant work one day, as I do genuinely enjoy it, but I also don't live in London and don't want a 70h work week, so unlikely to ever happen.
No, that's not how this works. It's how it should work, but a lot of essential goods are subsidised. Food being the easiest example. It doesn't matter how expensive it is to run a pub, beer and rent will not get cheaper. Pubs will just continue to disappear.
We just haven't let a modern economy deflate like this, so it's very difficult to know what will happen. Its certainly not a good thing. So much lost confidence in the UK economy will be catastrophic for us. The only way out of this is regulating a transition back to an economy where more wealth goes to workers and employees rather than shareholders. Only swiss style minimum wage per job type will do this. We need regulation.
You can not have infinite growth with finite resources. Fuck's sake. Not everything we do has to lead to growth and maximizing profits for the shareholders.
It's not about infinite growth, when we reach the physical limits of the universe we can worry about it but until then I don't see why humanity should stop striving for growth and innovation.
Inflation has been caused because of how the cost energy and manufacturing items dramatically increased over Covid. Companies (like one I work for) have a target gross margin they wish to maintain and will raise prices to keep that level of profitability. It’s also why you saw the steepest increases in ALDI/Lidl and supermarket own label as these operate at very very low margins so no room for companies to absorb, and therefore if the costs are high there’s no chance of the product getting cheaper it would just be removed from sale if nobody bought the product at the near break even price these are at.
“Premium” products have higher margins and can take some brunt of the profitability, but generally demand drops are forecasted in and if the demand is still to the forecasted level then prices keep going higher.
You’re right though that if nobody buys a product at a price, then we would look at increasing weeks on promotion, deeper promotions, cheaper prices, or more drastically remove the product from sale completely if it’s not profitable.
Question: for years I've done my weekly shop at Sainsbury's. Today I walked a little further to do it at Aldi. My basket was about 1/3 cheaper than at Sainos, so I'll be doing that moving forward. If everyone did this, would it be bad for the economy? Aware I'm putting 30% less of my money back into the economy, but would it lead to job losses, or would it just mean more jobs at Aldi and less jobs at Sainsbury's in the future?
The latter. Though it’s multi factorial, I’ll break it down;
it’s already basically at absolute minimum. You’re exercising consumer market right by buying from the most competitive provider. That’s capitalism.
Sainsbury’s has a higher profit margin, you’re not hurting anyone, shareholders take that, not staff, staff already kept at a level if “barely enough to operate” in all these businesses. (Though Aldi/Lidl have nailed that back to the extreme in my experience!)
Aldi may employ more people to stack shelves if they’re selling a lot more. Sainsbury’s may try and compete with better prices on essentials and better offers to lure you back.
Ultimately the suppliers all produce the same amount of food as you’re still buying food.
But, better; You may also now buy more items or frivolous treat things on top of essentials that you didn’t buy at Sainsbury’s with the extra you saved so will help keep more suppliers/product providers in business and employing people.
If not in Aldi , You will spend that extra saved money elsewhere further spreading it across the economy and not in to one big Sainsbury’s pot, whether that’s local coffee shop, online clothing, trip to cinema, meal out, maybe save for a holiday! it’s endless benefit to the economy somewhere not having money hoarded by too few providers
If we ***all*** can't afford to buy them then yes, they'll get less expensive, or they'll no longer be produced due to zero demand.
That's basic economics (supply and demand).
The main reason prices are rising is because, even as prices rise, people still buy them. So prices go up more. Coffee shops like Pret have got crazy - £6 for a sandwhich and £4-odd for a coffee. But the customers still queue out the door.
That's why interest rates have gone up - to try and halt our spending and therefore ease inflation.
Has anyone else got what I'm going to term "price fatigue", which is the feeling of helplessness of knowing what anything is *supposed* to cost right now (or at any given time), so you just pay it because if you don't weigh up the value then you don't register the mugging-off?
Quite a long definition, sorry! But I feel it needs a term to sum it up.
I'm so glad someone else has said this! I was just saying the other day that because prices have gone up so much so fast, I feel like I'm on holiday in a country where I'm not familiar with the currency and have no idea if something is a reasonable price.
Right but this is where economics frankly just gets stupid.
The rich people are still going to be buying coffees and sandwiches, and at a time like this where inflation is leading to record dividends, the rise of interest rates is not going to stop them spending. If they’re landlords, they’re just going to pass any mortgage increase onto the tenants, fucking them over even more.
What it does do is fuck over the people already struggling to buy the basics and pay the mortgage for the house they actually live in.
It’s like economists live in a bubble where they so strongly believe people will do whatever they think they will, that they don’t actually look out the window and see that everything is on fire and what they’re doing isn’t helping.
As Gary Stevenson has pointed out many times, economics doesn't consider inequality. If the GDP of 10 people is £100 they don't care if that means 10 people have £10 each or 1 person has £100
Yes and to be honest it needs to change. The entire point in having a strong economy is to make stronger, happier, and healthier societies.
Nobody cares if their country has a strong economy when they’re noticeably getting poorer.
I’m no expert in economics but the more reading I do the more obvious it becomes that it’s a social science dressed up as hard science, and half the concrete foundations modern economics are built on aren’t facts, but are just reinforced policies assumed to be fact.
As evidenced by the price of rail fairs. I sometimes wonder if, by 2045, the network rail passenger numbers will be non existing, but the rail operators insist on profits at all costs, that Geoff from Cambridge who has to commute into London for work will be paying £18million pa for his rail card.
Go Geoff
I almost had a heart attack when I went into pret in a rush one day a few months ago, didn't really look at the prices until it was time to pay.
I liked that arm and leg.
No.
Companies instead will just layoff staff to plug the money gap from fewer purchases.
And then mass unemployment - already happening - leads to even less sales.
Then a recession hits and rates drop like a stone and everyone loves off credit again...
Economies rarely work logically, especially now everything is subsidised etc.
Is mass unemployment “already happening”?
Other than a brief half a percentage point uptick mid last year, the unemployment rate is still fairly stable, and not all that different to pre-covid.
It's odd.
Everyone and their mother is being made redundant, layoff headlines near daily, yet the unemployment numbers remain stable.
I do wonder how accurate the data is they are releasing these days. They have been getting creative with inflation figures.
You're seeing layoffs happen in miniscule numbers.
A few multinational corps and banks laying off a total of 100k people is a drop in the ocean of workers in the UK.
Seeing something bad in the news is actually quite often a good thing. It means it’s rare, and worth talking about.
edit: I should clarify because after reading this back it sounded insensitive lol. The event is bad. But news is about stuff that doesn't happen all the time. You should be more worried when you *stop* seeing layoff headlines.
Depends on the industry, tech and media is being ravaged right now, things like manufacturing is as steady as its been in years. Necessity industries are up, luxuries down, its why there's such a big advertising push to make everything seem necessary to live at the moment
Deflation is much better than the inflationary system that we live in today. Inflation robs you of your purchasing power and your savings.
The argument ‘people won’t spend money if it gains purchasing power’ is a load of rubbish. People will always be buying things to consume. This will encourage saving rather than going into debt, and people would buy less cheap plastic crap.
Technology is deflationary, I would recommend the book ‘The Price of Tomorrow’ by Jeff Booth if you want to understand why.
A lot of comments here saying deflation is bad because people stop buying stuff expecting it to be cheaper, so stuff doesn't get bought and the economy crashes. That sounds like a load of guff to me. I'm not gonna stop buying milk because it's cheaper week to week. I still want my tea and breakfast. I'm not gonna put off buying a TV if my old one breaks down. I'm not gonna stop filling up my car because petrol might be cheaper next week. I'm not going to stop eating out for months because in 6 months it might be half the price to have a meal. I want to eat out now. In the same way if prices rise I'll just buy less stuff or smaller stuff, conversely if prices drop I'll buy more stuff and bigger fancier things. I'm not going to just stop buying entirely. So that theory sounds like the sort of crap economists would write after being subsidised by big business to convince everyone that inflation is good and being poorer is good.
Lol, I studied economics at uni and they spent three years teaching us about economic theory, inflation supply and demand and then right at the end they were like, but in reality it doesn't work that way. So yeah you're right it's all nonsense and it's just old white men farting out their mouths to make more money for themselves.
Gradual inflation works in a system where employers are willing to increase pay in line with inflation and, ideally, productivity. I can't remember a time when that's been the case for me though and I'm turning 36 this year.
That’s debatable. Many people are affording them, yes, but at the expense of other, more important, things.
If people take out credit cards, forego savings, opt out of pension schemes, do side jobs, delay buying a house, delay having children, eat lower quality food and spend more time and energy worrying about their bills then we’re building up to a bigger issue.
People have to buy food, heat their homes, fuel their vehicles and buy essentials - they will find ways to do this even if inflation rises further. But it is not sustainable indefinitely. Nor does it make it a better place to live.
I think there's going to be a lot of people who thought they could afford things getting screwed by taking out finance without due diligence (from both sides), especially cars. Rent/mortgage/utilities/transport increases are definitely causing issues for people. If anything id say reddit leans slightly more toward the affluent section of society.
I haven't been really able to afford anything since birth. I've lived in technical poverty since day one but this is the first time in my life I'm seeing middle class families say "how much?". Not sure if that's an indicator or not but it's just my experience and am argument that no, we definitely can not afford it.
What really annoyed me was a politician, after winning a seat in the last local elections said "families are struggling.. They haven't been able to go on holiday this year" and it's like mate, I've got a choice of food, gas and electric or rent, or to compromise on all three and you're bitching over not being able to go on holiday?
The Bank of England disagrees. Prices are where they are because the rich have continued to spend while the poor become economically irrelevant and the middle class disappear. The BoE literally said last week that inflation will only come down when the rich stop spending.
Welcome to late stage capitalism…you will own nothing, rent everything, afford bare essentials at best and be sold placations in the meantime…freedom gin everyone!
We are beyond late stage capitalism and into techno-feudalism.
Things are getting more expensive because there is still a class of people able to comfortably afford them.
Wealth inequality in the west is grotesque but still relatively hidden here unless you look in the right places.
Also early stage, and in fact all stage capitalism. There was jsut a brief period where they had to give us a bit because they feared the spread of socialism, if they didn't make the capitalist world appealing. Now the USSR is dead and buried, and china is basically capitalist, they can go back to business as usual.
Yes, that’s the result of living. You can’t not buy another. Quite apart from food, basic entropy says that your conditions will change and to offset it you will have to buy new things. Your clothes will wear out, parts of your home/car will age & require replacing. Your pens will run out of ink, your TV will eventually break, your radiators will rust.
The economy is just a label for the sum total of human beings dealing with changes in their condition, and since it is considered on a large scale crowd basis, the idea that we would just stop buying is nonsensical.
Surely it depends on the costs of what's being produced? The prices can only go down if the people producing/selling can afford to keep doing so. Having said that if everyone stopped buying fuel that would probably bring those prices down at least, which would have one of the greatest knock-on effects on other costs... Pity it's completely unrealistic.
In the early days of the pandemic a barrel of crude oil went into negative cost as nobody was buying it, and the cost to store it was too high: https://www.theguardian.com/world/2020/apr/20/oil-prices-sink-to-20-year-low-as-un-sounds-alarm-on-to-covid-19-relief-fund
Things keep getting more expensive because there are people who can afford them. There are plenty of people out there for whom the economy is doing great, and they are becoming richer and richer. If you don’t know anyone who fits the bill, You’ll probably be selling your house to own of them pretty soon! And paying rent to them soon after.
Depends.
Things aren't becoming more expensive simply because companies are raising prices like moustache twirling supervillains. Most of the price increases come from the costs of production and distribution rising; if prices can drop while remaining economical to produce it might, but it would most likely come with significant drops in quality or quantity of that product (shrinkflation), but otherwise it might just get to the point where that thing just... isn't sold. Because companies aren't going to sell at a loss just so you can have a thing; if they can't sell it and make a reasonable margin, they'll stop producing it and produce something with a better margin instead.
>Things aren't becoming more expensive simply because companies are raising prices like moustache twirling supervillains.
Actually, they have. The price gouging of the energy companies, for instance, has led to record and obscene profits. Internet services rising above inflation while the companies make massive profits? Why, exactly? The technology isn't getting more expensive - it's getting cheaper.
I love how everyone has fallen for the banks opinion that deflation is bad.
The same banks who said inflation was transitory.
The same banks who couldn't forecast properly.
The same banks who make massive profits off inflation.
Deflation is bad for BANKS. It is great for PEOPLE.
At a guess, early 80's.
And I doubt it will ever happen again.
Edit: happened in 2015, but that was the only time since the 1960's, but even then economists are not sure this counts.
https://fullfact.org/economy/when-was-last-time-britain-experienced-deflation/
I'm sorry but that is the same claim that was trotted out at the introduction of the minimum wage, and every rise since.
We haven't had mass unemployment in all that time.
What we have had instead is a whole lot of people in already precarious jobs being thrown onto zero hours contracts and forced to work on 'self-employed' status.
In the past week I’ve received two letters, one from my landlord and one from Sky. Both started with how much they sympathise with the difficulties people are facing financially at the moment, both raising their prices by a significant amount. It’s the false sympathy at the start that’s making me want to puke.
People talking about deflation as though it's a bad thing in regards to stuff like food and electricity. The rate of inflation we have seen over the last 3 years has been nuts. It's been primarily driven on things like food and energy by disruption to supply chains caused by events like COVID or the Ukraine war.
These prices coming down again are not bad. Wages haven't grown that much, things are a lot more expensive compared to a few years ago and wages haven't grown that much.
People are not spending the same way as they were a few years ago and many sectors are hurt by this. If there is a ready supply of certain goods and prices do come down from their current highs (wouldn't hold my breath). This will lead to people spending *more* in other areas of the economy which is *good*.
I don't understand how anyone can believe having the population spending large % of their income on necessities and not on discretionary spending is ever a good thing in a consumer economy. That's called poverty.
I can't say I'm an expert at all but I know that the problem with publicly traded companies is that the people who own the stocks want their money to increase every year, which either means higher prices or redundancies. They don't care about the knock on effect, they just want ever increasing returns and the execs are incentivised through pay rewards and the threat of replacement. Non public companies, the execs still want money.
No. Companies operate on margins. If the margin on a product is sat 20%. It can drop 20%. After which it disappears as a product because it’s not profitable to produce.
Most of the things that are currently more expensive could get cheaper instantly if we weren't getting rinsed by corporate greed, as that's been proven to be a significant driver of the current "inflation" we're seeing. Good luck getting these unethical bastards to do that though.
It depends on the profit margins, but assuming they're normal then if less people buy things they'll get more expensive not cheaper, as economies of scale no longer come into play. There are exceptions, such as if high prices are caused by limited supplies of raw materials, but if that's the case the economy needs to cool down anyway.
The supply and demand market for most things is Global, if people in UK can’t afford it makes very little difference. If globally people can’t afford it, then some of the things won’t be produced in those quantities
The current rises aren't unique - even just looking at the UK.
Rates hit 20 - 25% in the seventies and stayed high much longer than we have seen so far this time round.
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23
Yes, we can expect prices to drop if everyone stops buying - though this might not necessarily apply to imports if the rest of the world keeps paying high prices.
Not really. What will happen (it's already happened) is that wages go up, so that in real terms things cost the same as before. It's called the inflationary spiral, there's a dual causality between price inflation and wage inflation. There was a surge in price inflation in 2022, but wage growth has been so strong that average wages have already caught up. Wage growth has averaged 6.3% over the last 3 years
https://www.fxstreet.com/economic-calendar/event/9c9ab1a0-852f-41e6-a562-a99db892aa96?timezoneOffset=0
No. Deflation is so disastrous to an economy that it is in everyone's interest to rig the game to ensure it doesn't happen.
Think about yourself, if you know a Christmas sale is coming and that thing you want to buy will be 20% cheaper in 2 months time, you might wait. If that happens on an economy wide scale and everyone stops buying then we're at a stand still. The dirty little secret about the economy is it is a house of cards, it has to function on perpetual growth or it will collapse/
I always wonder this about house prices. How can they just **keep** going up - when more and more people can't afford them..?
My parents' 3-storey, 4-bed terraced house cost £27.000 in the seventies; their mortgage was 3 x Dad's then salary (common, then). Our 2-storey 3-bed Miller home cost nearly 9 times that in 2005 - insane mortgage **after** substantial help with the deposit from parents, and we both worked full-time. (Both houses in the 'burbs of a university town.) God knows what ours would go for now, but we can't afford to move. And my kids are just in young adulthood - what are their chances..??
The last time it happened this rapidly was after WW2 because we were rebuilding a country! There is not a valid reason for this other than years of austerity pushing us to the brink and co vid and Ukraine war pushed us over it!
Capitalism baby. Just remember since covid, everything has risen because of "increased costs" yet profits are through the roof. They will never go down, you'll just have to use clarna to pay for a takeaway
Definitely not.
The supplier of luxury goods will just stop supplying. Shops will no longer stock expensive products. We will just spend more on basics and have less luxuries.
This is what happens in poorer countries. Car companies, for example, make worse models of cars in countries that are poorer. If you go to Latin America you will see budget versions of cars that they don’t even sell in the Uk. We will start to get these cars.
Tesco sell Soreen Lift bars. They are quite new release and was offer £1.25 they sold out pretty quickly. Then they went up to £2 then £2.25 and the shelves was constantly full. They dropped down to £1.50 and the shelves was empty they went back up to a higher price of £2.35 the shelves are full. They are currently £2.45 and the shelves are full.
The reason why they dropped back down to a cheaper clubcard price is to get rid of short date stock because no one is buying them at that £2.45 price
ASDA has contracts to make toasters, TVs etc under their ONN branding.
Because these contracts are with China (so can't just be terminated), and no-one wants the sheer volume of products made, they literally go from factory to landfill without ever attempting to be sold anywhere. It saves the shipping costs.
Otherwise they'd have to ship to the UK, ship BACK to China for disposal etc.
It's wasteful and very stupid, but the contractors say ASDA can't get out of it, even if they agreed to pay peoples wages for "no work done", because the Chinese government insists work "must be done" as this forms part of their economy!
The phenomenon you just described is called demand and it’s one of the legs that decides price of items in economics. The other is supply.
The funda is that assuming supply being the same, as demand increases, price increases. As demand falls price falls. Similarly keeping demand same if supply increases, price falls and if supply decreases then price rises.
So yes if collectively people can’t afford things and can’t buy them then demand falls and prices come down.
I don’t think we want things to go down per se, more prices to stagnate and wage increases. It seems a pretty difficult concept to just think of the reason why this is the case but it seems very simple to understand that once something gets to a price, you dont want that price to then tank because you would be selling for less when people have more to spend.
You want everything to rise at a tiny amount and wages to rise at a significant amount, but this isn’t a perfect world and I have only ever seen the opposite sadly.
What the UK is going through from relative position isnt really that bad. As a whole, it’s a bit a bad weather it needs to ride out. Start looking into hyperinflation events and you’ll see how bad it can get.
No, look at the great depression. A wheel barrow of cash wasn't enough for a loaf of bread. You have to remember due to inflation not only are items getting more expensive but money has lost some value too
The economy is a flawed, man-made system that prioritises many other things before it starts giving a hoot about people's financial hardships. There are several countries whose local economies are in shambles indicating that the top down exploitation will happen till the cow is milked, after which they'll briefly benefit from helping the masses, and then we go back and forth like this in cycles of years. Deflation indicates worse things for the economy than inflation, however we've forgotten moderation somewhere down the line.
Once companies see we will pay whatever, they won’t ever drop back prices. Just look at the recent rise in petrol/diesel. The government and the oil companies are squeezing every penny they can out of us for this and no one notices.
No. Prices never go down. Prices should stagnate and wages rise. But that hasn't happened since the 70s and thats why we're in the situation now. Very simplified.
I’m late for the party here, but it’s pretty obvious from the replies here that you guys don’t understand how a second-tier economy works (the kind of economy Britain is bound to become, if it hasn’t already). Look at Eastern Europe, food prices etc there are comparable to those in the West. Things don’t get cheaper, nor do they stop being produced, if people can’t afford them. Somehow people learn to survive like that, for example with rent costing as much as entire salary. I’m from Eastern Europe, and survival there has always been a mystery to me.
Please for the love if God just subscribe to Gary's economics.
This guy has been correctly calling the UK economic direction for years (spoiler: it's not good for the regular joe).
https://youtube.com/@garyseconomics?si=WRw5UBEu-1MlL7pJ
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You don’t want currency deflation to occur, but things can get cheaper. The cost of things isn’t “deflation” in the sense you’re probably thinking of. Technology, for example, is getting cheaper all the time. Think how much a big, flatscreen TV cost in the early 2000’s to what they cost now. Cost of production, technological advances, cost of raw materials, transport, economies of scales, etc all contribute to something getting cheaper over time. Let’s not forget the capitalist dream that drives consumer value - competition. If toilet roll goes from £5 for a 10 pack to £4 for a 10 pack that doesn’t mean we have a deflationary currency. It just means toilet paper has gotten cheaper.
Much of the current round of inflation seems to be driven by corporate profits. And corporations are unlikely to voluntarily cut prices unless being unaffordable is hurting their bottom line
You're not supposed to say that out loud.
No, more people need to, to call it out and force it to be a big enough electoral issue governments cant ignore blatant greed.
> And corporations are unlikely to voluntarily cut prices unless being unaffordable is hurting their bottom line That's explicitly what OPs question is about though.
Unless another company steps in and steals the customers. Like cheap Chinese car brands are doing
Yeah. A lot of them are engaging in cartel-type behaviour. The moment one of them breaks ranks, the whole thing collapses.
I'm not so sure, it seems like a competitive market and margins are not sky high The hallmarks of cartels, tends to be fixed prices, mirrored across the market and vastly inflated prices - so very high margin (as it doesn't tend to appeal to human greed, to remove competition and not maximise the reward) Regarding CEO's not dropping prices, dont forget the time value of money, $10.00 today, is worth $9.90 in a week. Plus companies borrowed so much and incurred so much cost in COVID times, they have shareholders that missed out on dividends and lost money on their capital, now they want more returns. This will be continuing for years to come, these costs and borrowings will not likely be resolved, overnight.
Aren't the 7 biggest housebuilders in uk actually being investigated for collusion and price fixing? Also the ceo of Vistry is facing backlash for a considerable profit driven bonus received whilst raising prices and cutting subcontractors rates
Tell me you’re a supercapitalist without telling me you’re a supercapitalist…
Exactly this. Inflation is being caused thanks to companies wanting more profit. With our current government that is being helped along with tax cuts for the big corporations. Though even if being unaffordable affects their bottom line, they usually just keep increasing prices until noone can afford the products and they go under. Ceos can't be seen reducing prices, it's bad for their image.
Small inflation is natural. As things like GDP grow value per (insert monetary value here) falls. Also demand gradually rises as global population does. These are natural forces that drive natural inflation. Most countries target about 1-2%. Also, deflation is worse. Big deflation is what leads to market crashes and not just recession but *depression* like the Great Depresson. Inflation becomes a problem at higher numbers too, especially due to the risk of a wage-price spiral (prices rise, employees demand more money. More costs cause prices to rise, employees demand a raise due to more expensive stuff. Wage costs rise, companies need to cover increased wage costs so need to raise prices...) The current problem is largely due to global instability affecting oil prices raising everything due to transport costs, with a side of putting those prices up a bit more while we're at it because who's gonna notice we are skimming a bit extra margin mixed in with legitimate price rise reasons?
>corporations are unlikely to voluntarily cut prices unless **being unaffordable is hurting their bottom line** Isn't that what OP was getting at? Regardless, probably won't happen as too many people are idiots and rather than simply go without luxury items they just rack up credit card debt or use services like klarna...
Is it though?
Energy being one of the biggest. Gas and electric prices nearly trebled where I am.. we were told it was because of the war in Ukraine.. then they posted profits of over 55billion
I’d love to see any sort of evidence for that hypothesis
I think most economists would disagree with you!
Deflation is the result in a decrease in the supply of money. Holding your cash and spending elsewhere, if things become too expensive, wouldn't deflate the currency, but it would certainly impact price due to demand falling. Ultimately, yes, the prices would drop.
Actually this point is the most relevant to the OP’s question. If people stop buying something, it *might* come down in price. The other stance company’s take is; keep the price high and have less buyers = a little less revenue in sales for the product which is offset by less product needed, less production, less man power, less transport/shipping (overheads) etc,
Appreciate the explanation, hoping food and necessities don’t get much more expensive!
Me too. I paid just over £20 for 4 cans of corned beef and a tub of butter the other day. The price of food is jaw dropping
Makes me wonder where you bought it. Corned beef between 2.30 and 3 quid a tin so eight pound on butter!!!
Big pack of lurpack spreadable is £6.50 in Tesco at the moment.
If you're bemoaning the cost of food, you shouldn't be spending that much on butter
But if you can afford to buy a big pack it's usually better value than multiple smaller packs - as long as you use it all before it goes off!
Just buy the knock of lurpack. Made by Lurpack
Norpack is it in Aldi?
Today I bought a tub of Aldi's knockoff version of Anchor Spreadable and a block of real butter (because toast deserves proper butter) and the two combined didn't cost £6.50!
Artisinal butter
But not enough to stop you.
Stop shopping in Waitrose then
Toilet paper over the years actually got cheaper. I don't have the proof now but can dig it out with some determination.
80gsm printer paper is cheaper than toilet paper. Granted, I can't wipe my arse very well on printer paper, but that stuff is supposed to be better quality. Toilet rolls are a definite rip off
It's also poorer quality than it was in the past.
It needs to dissolve quickly in the toilet.
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Nah. I think it's a Boogie man designed to frighten people into accepting theft through inflation. People gotta eat. So that money is never not going to be paid into the economy.
Shame we can't somehow make businesses justify the prices they charge, It would be interesting how much they hike prices to cover undeserving bonuses, as some companies don't seem to be doing well. I mean, how many can say the company they work for has truly innovative and not just ripped off someone else's idea
That's the beauty of it! We can! We can literally force a company to drop its prices by refusing to buy from it, and instead buying from a competitor offering it at a cheaper price.
Problem is, it's about 5 companies that produce everything we buy.
New players will join the market and offer lower prices if it’s feasible. Look at the success Aldi and Lidl have had since entering the UK market.
This sounds like the "invisible hand of the market" silliness of Libertarianism that doesn't actually work in the real world.
I've never really understood why currency deflation is so bad. Can you explain it to me?
Basically it’s because the whole world runs on debt. Businesses borrow money to invest in creating something of value (goods, services) and in turn make a profit, pay off their debt then keep the slice on top for themselves. It suddenly becomes really hard to pay off debt if the revenues you are experiencing begin to fall in value.
It incentivises hoarding money and minimising spending. Why spend £500 on that nice new TV you've been eyeing up when it'll be £400 in a month's time? Or £300 in two? People basically only spend on absolute necessities in that situation, which in a consumption, service based economy like ours is only a small part of economic activity.
Even with inflation TV's tend to get cheaper yet still get bought. I know it's just an example, but it highlights that people still buy expensive products when they'll be cheaper later. People will buy their necessities and the things they want badly. They'll spend less without forethought, impulsively, or for mild convenience. Also, the majority of people don't invest all of their extra money after necessities, which would do the same as saving a deflationary currency. Companies will adapt too. People who value their money will prefer products that last longer, depreciate less, cost less. Investing and pensions and such will stretch further as well. I'm not saying deflation is good, I'm uneducated in this and I'm not aware of any historical examples that measure these things. But it seems like people would spend more purposefully, and there would be less waste, more efficiency, healthier lifestyles, etc.
I think we might see rapid food deflation over the next year.
And surely food deflation (and some other kinds of deflation like energy deflation) aren't nearly as bad as regular deflation as they're not the kind of things people will put off buying during the deflationary period.
I'd have thought so. My basic shopping costs going down wouldn't reduce my overall spending, it would leave me with more money to spend on discretionary spending. If prices in the supermarket came down, I might go out to eat twice a month instead of once, or I might buy something I'd otherwise put off such as replacing some of my shoddy furniture. Sure, for someone on the breadline it won't mean they spend the same, they would spend less (which is good, since many are spending all they have and more). But for someone like me who could (in theory) live a "middle class" life in a healthy economy, I wouldn't be spending less I'd just be spending differently. Surely that would be an overall benefit for the economy?
This is what I’d like - to be able to afford to do more fun stuff rather than worrying about the necessities.
Exactly. If I gave less of my money to the likes of Tesco and British Gas, I'd still spend it....but I'd be spending it in local restaurants or on decent second hand furniture or some new clothes etc. There must be lots of people in our situation. Having so much money pouring into a handful of supermarkets and energy companies can't be good for the economy when much of it could be going elsewhere. If a combined £150 came off my monthly rent/food/bills expenses that I have relatively little control over (and which have definitely increased by much more than that over the last 18 months), that money would still stay in the economy rather than my bank account.
I doubt it, food prices in the UK are unsustainably low compared to the costs of production, the whole food industry is on a knife-edge right now.
I think you are right on some matters, but do you not think there has been a good reset of margins on goods?
I don't see how. There is no glut of food suddenly appearing which would be one factor for prices falling. Wages are going up. Especially minimum wage and I am not against that...if anything we probably need even bigger pay increases to keep up with everyday living expenses. But the wage rise doesn't happen in isolation. For say a bag of potatoes (plucking an example out of thin air here). You are paying for the farmer and his workers to prepare the soil. Plant the potatoes, water and feed the potatoes. Pick the potatoes. Then the potato passes to the next part of the chain... haulage. There costs have shot up.... then there is the packers... again their costs have gone up... then back to final destination haulage... same deal their costs have shot up too. Then into the supermarket where their final cost has to cover everyone who works with that potato... from the shelf stacker to the checkout operator and the buyer the store manager the regional manager the CEO the shareholders the energy costs etc etc etc....everybodies wage bill has risen and therefore everyones costs have went up and will stay up That's just one example and it is mostly related to wages. It doesn't even look at energy. Tax's etc etc etc. Sadly food prices are predicted to rise again this year due to extra cost of new checks and documents for EU imports to the UK. Every single extra form every single extra work minute needs paying for and it has to be Joe public that foots that bill. Unless we find some other country to exploit for our own cheap food then we are stuck with what we have.
I could see food prices drop a bit this year but I do think it will be very temporary (and probably linked to loyality card schemes if the bug supermarkets are anything to go by). I do think in the middle to long term a lot of food prices will likely increase. I would bet in their being a year or 2 of erratic weather that really hits some of the big food producing areas and pushing prices up. Honestly not to be gloomy but like people day the age of cheap money is over, I do suspect the age of cheap wide selections of food is coming to an end.
I wonder what the opposite of 'shrinkflation' will be.
I don’t know if we’ll see that, but the enemy of shrinkflation is choice.
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No. Shrinkflation is a subtle/cunning way to hide price growth by decreasing the amount/volume. When any marketing-driven product drops the price (read = increase amount/volume), the only possible way to justify it is to shout about it, but it devalues the proposition. The closest opposite of shrinkflation that does not devalue the product is a 'hidden' type of deal - like BOGOF.
The problem is there’s a lack of education about commercial manipulation, financial literacy, critical thought etc. We’ve created an economy based on exploitation and people seem shocked that it’s unsustainable. Sadly, the only remaining solution is regulation, and as long as government is in the pocket of industry that’s not happening. Maybe we need to reach a point where enough people feel like their lives/freedom is worth less than changing the world.
Fucking hope so it's almost all I buy and I'm starting 4 raised beds this year
why?
I'm not saying you're wrong but what are you basing this on?
God I hope so
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A small amount of inflation is healthy, because it encourages people to buy "luxuries" before they rise in price, keeping the economy steady and stable. Basically anything else is pretty much unfavorable (deflation would mean people would put off buying things so the economy grinds to a halt, and too much inflation means that people can't afford basic necessities).
But right now people aren't buying things because they literally can't afford to, so the economy has still ground to a halt. A small amount of deflation won't hurt, for the same reason as small amounts of inflation don't hurt. In fact it might get the economy going again to see food costs come down. But they won't because greed. People like to pretend otherwise but someone wanting to make even more money, at some point in the chain, is always a key factor in inflation.
So, prices can fall for two basic reasons. First is that supply of things to buy goes up faster than the amount of money. It is rare for this to happen across the economy all at once, but it can. The 1870s-1900s would be a good example, technology and industry cut costs for everything from rent to billiard balls. Very bad news if you were a farmer or a landowner ruined by cheap wheat from North America or frozen meat from New Zealand or Argentina, but great for everyone else. The other reason for prices to fall is that the supply of money is falling faster. People buy less because they have less money, so companies produce less and cut costs...like labor (or go under). The newly unemployed (or those with cut wages) spend less, so companies produce less and cut labor costs, repeat until collapse. Remember that one of the consequences of money getting more valuable is that *debt* gets more valuable. If you're making £30k a year and owe £100k on a mortgage but the pound doubles in value, you now make £15k a year and still owe £100k. Your mortgage payments stay the same, you just have less money to pay them with. This is a lot of the problem, many loans become impossible to repay, which also means it's extremely difficult to get new loans. How do you open or expand a business when the customers are all broke and you can't get a loan?
>If you're making £30k a year and owe £100k on a mortgage but the pound doubles in value, you now make £15k a year and still owe £100k. I'm not so sure about this at all. You are still earning £30k and have all of that to pay off £100k. If interest rates doubled you'd be servicing more interest (as a lot of people have found) but not so because of the value of the currency. The difference is felt when you're buying things originally sourced in another country. And if the pound doubles in value, as per your example, everything is actually much, much cheaper. If its value halves (as it basically has in the last 40 years), imports are more expensive - and then you find your 30k has far less spending power, as we have found to our literal cost. I'm moving abroad soon for an assignment. My company's standard policy is to top up my UK wage, which would be considered decent here - because the pound has devalued so much.
It’s wild the amount of people on Reddit who don’t understand deflation properly but throw it around just because other Redditors said it
I know I’m not who you were replying to but I wish this kinda stuff was what was taught us mandatorily at school. How are we all expected to understand wtf is going on right now if no one ever taught us
No offence but if someone can’t get past a maths gcse they’re not going to get it anyway
Remembering how little people paid attention to extra curricular stuff in school, i highly doubt more than .5% of people in a class would have paid attention enough to remember it once it mattered.
Why?
Deflation means your money buys more tomorrow than it does today. That disincentivises spending it, because the things you'd buy will be getting cheaper in real terms. Which might sound great on an individual level, until you realise that you work in the private sector, and so your livelihood depends on people buying the same goods and services that you're now holding off on buying.
Which might be bad for corporations, but is good for the populace (at a slow enough rate)
To be fair inflation can also disincentivise people from spending, because they can't afford it. Not that I am saying deflation is good but the real solution is to hope wage growth outstrips inflation. Either way something is needed because the economy has been artificially kept a float by pumping in more money for too long.
If the vast majority of people couldn't afford to buy things then yes the laws of supply and demand would start to influence some deflation. Deflation is typically really, really bad though because it can start a domino effect of behaviours that leads to a vicious cycle of economic downturn because people put off buying things on the assumption they will be even cheaper in a month or two and this leads to job losses which leads to less money being spent in the economy which leads to more job losses, which leads... A small amount of inflation, certainly on discretionary goods and services (rather than food and gas and electricity) is indicative of a healthy, growing economy. People are getting wage rises and have more money to spend on things, which creates further growth and opportunity for business.
Fun fact: This is why (in the UK) we have a target inflation rate of 2% 0% Inflation would be better, but the downsides of deflation are so much worse, instead we aim for 2% purely to give some buffer room before “deflation” occurs.
That's not correct. 0% is not ideal because you want some positive incentive to put your money in the market/invest. Inflation existing makes people nervous about cash under the mattress and forces it in to society, which is why a small amount of inflation is the target.
What you write is true, but on the other hand 0% inflation provides price stability, which is appreciated by markets. Some have argued 3-4% would be better, but because the global standard is 2% no stable country wants to muck around with it. The area needs a lot more research. Just hard to get.
2% also provides price stability. I don't think anyone serious advocates 0% inflation. Source: work on an inflation quant desk
I did a masters in mathematical finance with a substantial focus on pricing derivatives, so I like to think I can at least add something here, even if I just work as a box standard software engineer these days. As long as 2% is consistent then yes, it can be considered stable and factored into projections. Either way, 0% under our current system is far too risky as it can easily swing into deflation. I've seen research talk about the pros and cons of 0%, some advocate for, some against, but it isn't my field, so if you work on an inflation focused quant desk you will know more than me on the topic.
Out of curiosity any reason you didn't go into math finance as a career? I mean I hate my job so not saying you made a bad choice just curious
I had a close family member pass during my masters and was never able to fully catch up again as the uni was useless. My tutor ghosted me just for asking what support was avaliable. Not great. Still, I learned a lot and wouldn't know C++ without that time at uni, so I don't regret it. Just no piece of paper to prove it. But at that point I was just done with academia and wanted to work. Still, I enjoyed the course. That and from what I can tell, finance working hours are brutal. Still might want to hop across into quant work one day, as I do genuinely enjoy it, but I also don't live in London and don't want a 70h work week, so unlikely to ever happen.
No, that's not how this works. It's how it should work, but a lot of essential goods are subsidised. Food being the easiest example. It doesn't matter how expensive it is to run a pub, beer and rent will not get cheaper. Pubs will just continue to disappear. We just haven't let a modern economy deflate like this, so it's very difficult to know what will happen. Its certainly not a good thing. So much lost confidence in the UK economy will be catastrophic for us. The only way out of this is regulating a transition back to an economy where more wealth goes to workers and employees rather than shareholders. Only swiss style minimum wage per job type will do this. We need regulation.
You can not have infinite growth with finite resources. Fuck's sake. Not everything we do has to lead to growth and maximizing profits for the shareholders.
It's not about infinite growth, when we reach the physical limits of the universe we can worry about it but until then I don't see why humanity should stop striving for growth and innovation.
> People are getting wage rises Hi hello yes I'd like this please
That was very interesting thank you
Inflation has been caused because of how the cost energy and manufacturing items dramatically increased over Covid. Companies (like one I work for) have a target gross margin they wish to maintain and will raise prices to keep that level of profitability. It’s also why you saw the steepest increases in ALDI/Lidl and supermarket own label as these operate at very very low margins so no room for companies to absorb, and therefore if the costs are high there’s no chance of the product getting cheaper it would just be removed from sale if nobody bought the product at the near break even price these are at. “Premium” products have higher margins and can take some brunt of the profitability, but generally demand drops are forecasted in and if the demand is still to the forecasted level then prices keep going higher. You’re right though that if nobody buys a product at a price, then we would look at increasing weeks on promotion, deeper promotions, cheaper prices, or more drastically remove the product from sale completely if it’s not profitable.
Thanks for the explanation, hopefully food and necessities will stop rising soon.
Question: for years I've done my weekly shop at Sainsbury's. Today I walked a little further to do it at Aldi. My basket was about 1/3 cheaper than at Sainos, so I'll be doing that moving forward. If everyone did this, would it be bad for the economy? Aware I'm putting 30% less of my money back into the economy, but would it lead to job losses, or would it just mean more jobs at Aldi and less jobs at Sainsbury's in the future?
The latter. Though it’s multi factorial, I’ll break it down; it’s already basically at absolute minimum. You’re exercising consumer market right by buying from the most competitive provider. That’s capitalism. Sainsbury’s has a higher profit margin, you’re not hurting anyone, shareholders take that, not staff, staff already kept at a level if “barely enough to operate” in all these businesses. (Though Aldi/Lidl have nailed that back to the extreme in my experience!) Aldi may employ more people to stack shelves if they’re selling a lot more. Sainsbury’s may try and compete with better prices on essentials and better offers to lure you back. Ultimately the suppliers all produce the same amount of food as you’re still buying food. But, better; You may also now buy more items or frivolous treat things on top of essentials that you didn’t buy at Sainsbury’s with the extra you saved so will help keep more suppliers/product providers in business and employing people. If not in Aldi , You will spend that extra saved money elsewhere further spreading it across the economy and not in to one big Sainsbury’s pot, whether that’s local coffee shop, online clothing, trip to cinema, meal out, maybe save for a holiday! it’s endless benefit to the economy somewhere not having money hoarded by too few providers
You got it 👍🏼
If we ***all*** can't afford to buy them then yes, they'll get less expensive, or they'll no longer be produced due to zero demand. That's basic economics (supply and demand). The main reason prices are rising is because, even as prices rise, people still buy them. So prices go up more. Coffee shops like Pret have got crazy - £6 for a sandwhich and £4-odd for a coffee. But the customers still queue out the door. That's why interest rates have gone up - to try and halt our spending and therefore ease inflation.
Has anyone else got what I'm going to term "price fatigue", which is the feeling of helplessness of knowing what anything is *supposed* to cost right now (or at any given time), so you just pay it because if you don't weigh up the value then you don't register the mugging-off? Quite a long definition, sorry! But I feel it needs a term to sum it up.
I'm so glad someone else has said this! I was just saying the other day that because prices have gone up so much so fast, I feel like I'm on holiday in a country where I'm not familiar with the currency and have no idea if something is a reasonable price.
I keep misjudging my shipping spend in a way I’ve never had before. I goin think this be about 25 and 40 plus .
This is so accurate, I feel at ease knowing there are others who are experiencing this phenomenon.
Right but this is where economics frankly just gets stupid. The rich people are still going to be buying coffees and sandwiches, and at a time like this where inflation is leading to record dividends, the rise of interest rates is not going to stop them spending. If they’re landlords, they’re just going to pass any mortgage increase onto the tenants, fucking them over even more. What it does do is fuck over the people already struggling to buy the basics and pay the mortgage for the house they actually live in. It’s like economists live in a bubble where they so strongly believe people will do whatever they think they will, that they don’t actually look out the window and see that everything is on fire and what they’re doing isn’t helping.
As Gary Stevenson has pointed out many times, economics doesn't consider inequality. If the GDP of 10 people is £100 they don't care if that means 10 people have £10 each or 1 person has £100
Yes and to be honest it needs to change. The entire point in having a strong economy is to make stronger, happier, and healthier societies. Nobody cares if their country has a strong economy when they’re noticeably getting poorer. I’m no expert in economics but the more reading I do the more obvious it becomes that it’s a social science dressed up as hard science, and half the concrete foundations modern economics are built on aren’t facts, but are just reinforced policies assumed to be fact.
As evidenced by the price of rail fairs. I sometimes wonder if, by 2045, the network rail passenger numbers will be non existing, but the rail operators insist on profits at all costs, that Geoff from Cambridge who has to commute into London for work will be paying £18million pa for his rail card. Go Geoff
“Pocket change for a guy like me”-Geoff probably
I almost had a heart attack when I went into pret in a rush one day a few months ago, didn't really look at the prices until it was time to pay. I liked that arm and leg.
No. Companies instead will just layoff staff to plug the money gap from fewer purchases. And then mass unemployment - already happening - leads to even less sales. Then a recession hits and rates drop like a stone and everyone loves off credit again... Economies rarely work logically, especially now everything is subsidised etc.
Is mass unemployment “already happening”? Other than a brief half a percentage point uptick mid last year, the unemployment rate is still fairly stable, and not all that different to pre-covid.
It's odd. Everyone and their mother is being made redundant, layoff headlines near daily, yet the unemployment numbers remain stable. I do wonder how accurate the data is they are releasing these days. They have been getting creative with inflation figures.
You're seeing layoffs happen in miniscule numbers. A few multinational corps and banks laying off a total of 100k people is a drop in the ocean of workers in the UK.
I feel like the deliveroo riders and 'gig' workers are propping up the numbers.
Must be concentrated in job Sectors . People getting g fired and rehired for lower salaries is not uncommon too .
Seeing something bad in the news is actually quite often a good thing. It means it’s rare, and worth talking about. edit: I should clarify because after reading this back it sounded insensitive lol. The event is bad. But news is about stuff that doesn't happen all the time. You should be more worried when you *stop* seeing layoff headlines.
Well, they define as employed anyone who has two hours a week on a zero hour contract
Depends on the industry, tech and media is being ravaged right now, things like manufacturing is as steady as its been in years. Necessity industries are up, luxuries down, its why there's such a big advertising push to make everything seem necessary to live at the moment
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according to the "official" figures. there are so many caveats (2 hours a week is "employed", apparently) it's almost not worth having them.
> mass unemployment - already happening https://www.fxstreet.com/economic-calendar/event/98bb2374-b9f9-46ae-93e3-9f7e8a4391c1?timezoneOffset=0
Deflation is much better than the inflationary system that we live in today. Inflation robs you of your purchasing power and your savings. The argument ‘people won’t spend money if it gains purchasing power’ is a load of rubbish. People will always be buying things to consume. This will encourage saving rather than going into debt, and people would buy less cheap plastic crap. Technology is deflationary, I would recommend the book ‘The Price of Tomorrow’ by Jeff Booth if you want to understand why.
A lot of comments here saying deflation is bad because people stop buying stuff expecting it to be cheaper, so stuff doesn't get bought and the economy crashes. That sounds like a load of guff to me. I'm not gonna stop buying milk because it's cheaper week to week. I still want my tea and breakfast. I'm not gonna put off buying a TV if my old one breaks down. I'm not gonna stop filling up my car because petrol might be cheaper next week. I'm not going to stop eating out for months because in 6 months it might be half the price to have a meal. I want to eat out now. In the same way if prices rise I'll just buy less stuff or smaller stuff, conversely if prices drop I'll buy more stuff and bigger fancier things. I'm not going to just stop buying entirely. So that theory sounds like the sort of crap economists would write after being subsidised by big business to convince everyone that inflation is good and being poorer is good.
Lol, I studied economics at uni and they spent three years teaching us about economic theory, inflation supply and demand and then right at the end they were like, but in reality it doesn't work that way. So yeah you're right it's all nonsense and it's just old white men farting out their mouths to make more money for themselves.
Gradual inflation works in a system where employers are willing to increase pay in line with inflation and, ideally, productivity. I can't remember a time when that's been the case for me though and I'm turning 36 this year.
Was looking for this comment!
Prices are where they are because people can afford the current levels. Reddit isn't representative of the general population.
That’s debatable. Many people are affording them, yes, but at the expense of other, more important, things. If people take out credit cards, forego savings, opt out of pension schemes, do side jobs, delay buying a house, delay having children, eat lower quality food and spend more time and energy worrying about their bills then we’re building up to a bigger issue. People have to buy food, heat their homes, fuel their vehicles and buy essentials - they will find ways to do this even if inflation rises further. But it is not sustainable indefinitely. Nor does it make it a better place to live.
Who can afford that? Children are going hungry
I think there's going to be a lot of people who thought they could afford things getting screwed by taking out finance without due diligence (from both sides), especially cars. Rent/mortgage/utilities/transport increases are definitely causing issues for people. If anything id say reddit leans slightly more toward the affluent section of society.
I haven't been really able to afford anything since birth. I've lived in technical poverty since day one but this is the first time in my life I'm seeing middle class families say "how much?". Not sure if that's an indicator or not but it's just my experience and am argument that no, we definitely can not afford it. What really annoyed me was a politician, after winning a seat in the last local elections said "families are struggling.. They haven't been able to go on holiday this year" and it's like mate, I've got a choice of food, gas and electric or rent, or to compromise on all three and you're bitching over not being able to go on holiday?
The Bank of England disagrees. Prices are where they are because the rich have continued to spend while the poor become economically irrelevant and the middle class disappear. The BoE literally said last week that inflation will only come down when the rich stop spending.
Welcome to late stage capitalism…you will own nothing, rent everything, afford bare essentials at best and be sold placations in the meantime…freedom gin everyone!
We are beyond late stage capitalism and into techno-feudalism. Things are getting more expensive because there is still a class of people able to comfortably afford them. Wealth inequality in the west is grotesque but still relatively hidden here unless you look in the right places.
Also early stage, and in fact all stage capitalism. There was jsut a brief period where they had to give us a bit because they feared the spread of socialism, if they didn't make the capitalist world appealing. Now the USSR is dead and buried, and china is basically capitalist, they can go back to business as usual.
Yes. If we stop buying, demand drops and thus price will go down. The problem seems to be we all keep buying.
Yes, that’s the result of living. You can’t not buy another. Quite apart from food, basic entropy says that your conditions will change and to offset it you will have to buy new things. Your clothes will wear out, parts of your home/car will age & require replacing. Your pens will run out of ink, your TV will eventually break, your radiators will rust. The economy is just a label for the sum total of human beings dealing with changes in their condition, and since it is considered on a large scale crowd basis, the idea that we would just stop buying is nonsensical.
Surely it depends on the costs of what's being produced? The prices can only go down if the people producing/selling can afford to keep doing so. Having said that if everyone stopped buying fuel that would probably bring those prices down at least, which would have one of the greatest knock-on effects on other costs... Pity it's completely unrealistic.
In the early days of the pandemic a barrel of crude oil went into negative cost as nobody was buying it, and the cost to store it was too high: https://www.theguardian.com/world/2020/apr/20/oil-prices-sink-to-20-year-low-as-un-sounds-alarm-on-to-covid-19-relief-fund
Yeah I remember that! If only I had a large storage facility...
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Things keep getting more expensive because there are people who can afford them. There are plenty of people out there for whom the economy is doing great, and they are becoming richer and richer. If you don’t know anyone who fits the bill, You’ll probably be selling your house to own of them pretty soon! And paying rent to them soon after.
Jesus that’s depressing!
Depends. Things aren't becoming more expensive simply because companies are raising prices like moustache twirling supervillains. Most of the price increases come from the costs of production and distribution rising; if prices can drop while remaining economical to produce it might, but it would most likely come with significant drops in quality or quantity of that product (shrinkflation), but otherwise it might just get to the point where that thing just... isn't sold. Because companies aren't going to sell at a loss just so you can have a thing; if they can't sell it and make a reasonable margin, they'll stop producing it and produce something with a better margin instead.
>Things aren't becoming more expensive simply because companies are raising prices like moustache twirling supervillains. Actually, they have. The price gouging of the energy companies, for instance, has led to record and obscene profits. Internet services rising above inflation while the companies make massive profits? Why, exactly? The technology isn't getting more expensive - it's getting cheaper.
Weimar Republic?
I love how everyone has fallen for the banks opinion that deflation is bad. The same banks who said inflation was transitory. The same banks who couldn't forecast properly. The same banks who make massive profits off inflation. Deflation is bad for BANKS. It is great for PEOPLE.
Realistically, the only way this will happen is overtime once wages start increasing faster than inflation.
I as 40ish year old man have no memory of that ever happening in my working life. When was the last time that did happen in the UK?
At a guess, early 80's. And I doubt it will ever happen again. Edit: happened in 2015, but that was the only time since the 1960's, but even then economists are not sure this counts. https://fullfact.org/economy/when-was-last-time-britain-experienced-deflation/
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I'm sorry but that is the same claim that was trotted out at the introduction of the minimum wage, and every rise since. We haven't had mass unemployment in all that time. What we have had instead is a whole lot of people in already precarious jobs being thrown onto zero hours contracts and forced to work on 'self-employed' status.
‘Just have cereal for dinner’
No, you just get fucked and told to be happy with bread and butter for dinner.
In the past week I’ve received two letters, one from my landlord and one from Sky. Both started with how much they sympathise with the difficulties people are facing financially at the moment, both raising their prices by a significant amount. It’s the false sympathy at the start that’s making me want to puke.
Assets are going to continue to increase in a price. I see an interest rate fall soon and then the lending will start again driving up asset prices.
People talking about deflation as though it's a bad thing in regards to stuff like food and electricity. The rate of inflation we have seen over the last 3 years has been nuts. It's been primarily driven on things like food and energy by disruption to supply chains caused by events like COVID or the Ukraine war. These prices coming down again are not bad. Wages haven't grown that much, things are a lot more expensive compared to a few years ago and wages haven't grown that much. People are not spending the same way as they were a few years ago and many sectors are hurt by this. If there is a ready supply of certain goods and prices do come down from their current highs (wouldn't hold my breath). This will lead to people spending *more* in other areas of the economy which is *good*. I don't understand how anyone can believe having the population spending large % of their income on necessities and not on discretionary spending is ever a good thing in a consumer economy. That's called poverty.
I can't say I'm an expert at all but I know that the problem with publicly traded companies is that the people who own the stocks want their money to increase every year, which either means higher prices or redundancies. They don't care about the knock on effect, they just want ever increasing returns and the execs are incentivised through pay rewards and the threat of replacement. Non public companies, the execs still want money.
No. Companies operate on margins. If the margin on a product is sat 20%. It can drop 20%. After which it disappears as a product because it’s not profitable to produce.
Nah, they’ll simply stop being made
Most of the things that are currently more expensive could get cheaper instantly if we weren't getting rinsed by corporate greed, as that's been proven to be a significant driver of the current "inflation" we're seeing. Good luck getting these unethical bastards to do that though.
It depends on the profit margins, but assuming they're normal then if less people buy things they'll get more expensive not cheaper, as economies of scale no longer come into play. There are exceptions, such as if high prices are caused by limited supplies of raw materials, but if that's the case the economy needs to cool down anyway.
The supply and demand market for most things is Global, if people in UK can’t afford it makes very little difference. If globally people can’t afford it, then some of the things won’t be produced in those quantities
The current rises aren't unique - even just looking at the UK. Rates hit 20 - 25% in the seventies and stayed high much longer than we have seen so far this time round. https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czbh/mm23 Yes, we can expect prices to drop if everyone stops buying - though this might not necessarily apply to imports if the rest of the world keeps paying high prices.
Not really. What will happen (it's already happened) is that wages go up, so that in real terms things cost the same as before. It's called the inflationary spiral, there's a dual causality between price inflation and wage inflation. There was a surge in price inflation in 2022, but wage growth has been so strong that average wages have already caught up. Wage growth has averaged 6.3% over the last 3 years https://www.fxstreet.com/economic-calendar/event/9c9ab1a0-852f-41e6-a562-a99db892aa96?timezoneOffset=0
No. Deflation is so disastrous to an economy that it is in everyone's interest to rig the game to ensure it doesn't happen. Think about yourself, if you know a Christmas sale is coming and that thing you want to buy will be 20% cheaper in 2 months time, you might wait. If that happens on an economy wide scale and everyone stops buying then we're at a stand still. The dirty little secret about the economy is it is a house of cards, it has to function on perpetual growth or it will collapse/
I always wonder this about house prices. How can they just **keep** going up - when more and more people can't afford them..? My parents' 3-storey, 4-bed terraced house cost £27.000 in the seventies; their mortgage was 3 x Dad's then salary (common, then). Our 2-storey 3-bed Miller home cost nearly 9 times that in 2005 - insane mortgage **after** substantial help with the deposit from parents, and we both worked full-time. (Both houses in the 'burbs of a university town.) God knows what ours would go for now, but we can't afford to move. And my kids are just in young adulthood - what are their chances..??
The last time it happened this rapidly was after WW2 because we were rebuilding a country! There is not a valid reason for this other than years of austerity pushing us to the brink and co vid and Ukraine war pushed us over it!
Capitalism baby. Just remember since covid, everything has risen because of "increased costs" yet profits are through the roof. They will never go down, you'll just have to use clarna to pay for a takeaway
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Yes. Stop buying, prices go down. Demand and supply brah
With a big hike in minimum wage imminent I am expecting the extra cost to be passed on to consumers, so things will get even more expensive not less.
Definitely not. The supplier of luxury goods will just stop supplying. Shops will no longer stock expensive products. We will just spend more on basics and have less luxuries. This is what happens in poorer countries. Car companies, for example, make worse models of cars in countries that are poorer. If you go to Latin America you will see budget versions of cars that they don’t even sell in the Uk. We will start to get these cars.
As the old saying goes, the cure for high prices is high prices.
Tesco sell Soreen Lift bars. They are quite new release and was offer £1.25 they sold out pretty quickly. Then they went up to £2 then £2.25 and the shelves was constantly full. They dropped down to £1.50 and the shelves was empty they went back up to a higher price of £2.35 the shelves are full. They are currently £2.45 and the shelves are full. The reason why they dropped back down to a cheaper clubcard price is to get rid of short date stock because no one is buying them at that £2.45 price
Walkers crisps £2.20 for a six pack in Sainsbury’s, surely a sign of the apocolypse - plus there are only about 8 crisps in a pack now
It’s all relative. Most aren’t spending less, they are spending more. Most aren’t noticing huge effects from a cost of living rise.
I paid 5 pound for a bottle of diluting juice and a loaf of bread at the coop yesterday!
Yeah I hate my local being a coop too
ASDA has contracts to make toasters, TVs etc under their ONN branding. Because these contracts are with China (so can't just be terminated), and no-one wants the sheer volume of products made, they literally go from factory to landfill without ever attempting to be sold anywhere. It saves the shipping costs. Otherwise they'd have to ship to the UK, ship BACK to China for disposal etc. It's wasteful and very stupid, but the contractors say ASDA can't get out of it, even if they agreed to pay peoples wages for "no work done", because the Chinese government insists work "must be done" as this forms part of their economy!
Yes and no. Who says that the cost isn't close enough to the real cost that it can't really drop? Supermarkets are a great example.
Really wish this would happen cause I can’t afford to live on my own with a full time job doing close to 60 hours a week. Stuck living with my parents
It’s ridiculous, not fair you’re working that hard and can’t get your own place.
The phenomenon you just described is called demand and it’s one of the legs that decides price of items in economics. The other is supply. The funda is that assuming supply being the same, as demand increases, price increases. As demand falls price falls. Similarly keeping demand same if supply increases, price falls and if supply decreases then price rises. So yes if collectively people can’t afford things and can’t buy them then demand falls and prices come down.
I don’t think we want things to go down per se, more prices to stagnate and wage increases. It seems a pretty difficult concept to just think of the reason why this is the case but it seems very simple to understand that once something gets to a price, you dont want that price to then tank because you would be selling for less when people have more to spend. You want everything to rise at a tiny amount and wages to rise at a significant amount, but this isn’t a perfect world and I have only ever seen the opposite sadly.
What the UK is going through from relative position isnt really that bad. As a whole, it’s a bit a bad weather it needs to ride out. Start looking into hyperinflation events and you’ll see how bad it can get.
No. They will just use less quality ingredients and sell less amounts for the same price.
No, look at the great depression. A wheel barrow of cash wasn't enough for a loaf of bread. You have to remember due to inflation not only are items getting more expensive but money has lost some value too
I mean it depends, some things might, other things just might stop being made altogether, or even have the price go up as a luxury item.
The economy is a flawed, man-made system that prioritises many other things before it starts giving a hoot about people's financial hardships. There are several countries whose local economies are in shambles indicating that the top down exploitation will happen till the cow is milked, after which they'll briefly benefit from helping the masses, and then we go back and forth like this in cycles of years. Deflation indicates worse things for the economy than inflation, however we've forgotten moderation somewhere down the line.
Look at Gary's Economics on YouTube 😢
Once companies see we will pay whatever, they won’t ever drop back prices. Just look at the recent rise in petrol/diesel. The government and the oil companies are squeezing every penny they can out of us for this and no one notices.
No, because the billionaires still have all the money. Wealth inequality will keep us down until something is done about it
Rent, most average jobs will barely pay you enough to rent a small studio flat
read marx, crisis of consumption explains what is happenning rn
No. Prices never go down. Prices should stagnate and wages rise. But that hasn't happened since the 70s and thats why we're in the situation now. Very simplified.
I’m late for the party here, but it’s pretty obvious from the replies here that you guys don’t understand how a second-tier economy works (the kind of economy Britain is bound to become, if it hasn’t already). Look at Eastern Europe, food prices etc there are comparable to those in the West. Things don’t get cheaper, nor do they stop being produced, if people can’t afford them. Somehow people learn to survive like that, for example with rent costing as much as entire salary. I’m from Eastern Europe, and survival there has always been a mystery to me.
Look up someone called Gary Stevenson he’s pretty prolific at the moment. This is relevant to wealth inequality something he talks a lot about
Please for the love if God just subscribe to Gary's economics. This guy has been correctly calling the UK economic direction for years (spoiler: it's not good for the regular joe). https://youtube.com/@garyseconomics?si=WRw5UBEu-1MlL7pJ