Last week, the Governor of the Bank of England, Mark Carney, said inflation in the UK could temporarily turn negative in the spring because of falling oil prices – it was reported here.
Rising prices were always seen to be a bad thing – nobody likes to buy something this week and pay more for it than last week. But the flipside of the coin, when you’re selling something, is just the opposite. Great if you can sell something this week for a higher price than last week.
But like most things, it’s better to happen in moderation. Not too much, nor too little. Slowly does it…
Launching the Bank’s inflation report, Mark Carney added: “Prices are likely to rebound around the turn of the year, so this did not mean the economy had entered deflation.”
Deflation – Now, that’s a new word for many people.
We have all been brought up on a diet of inflation and the National Debt. But it seems we now need to worry about other things as well.
As fool.co.uk put it: “Deflation is just about the last thing you want at a time when your economy desperately needs to start growing. It is retail demand that drives the whole thing, and if goods are going to be cheaper in the future then there’s little incentive to spend now — and it’s compounded by the value of debts getting bigger. We’ve already seen the same thing happen in Japan, which suffered a 20-year cycle of deflation that proved extremely hard to get out of.”
Germany knows about deflation. Official figures from Germany show that prices fell, by 0.5%, over the previous 12 months (although, after last week’s spurt in the German economy and encouraging signals from the wider Eurozone, there’s some optimism that Europe’s economy might finally be turning the corner).
The UK is flirting with deflation too, as price inflation is expected to have fallen to a record low, with figures out this week likely to show it reached 0.3 per cent in January, according to City A.M. – read here.
But this article isn’t a treatise on the economy but rather an explanation that when it comes to juggling the figures, inflation isn’t the only thing to understand. Here are a few terms explained as simply as I can. If someone out there can provide easier to understand definitions, I’ll be very pleased to hear from them. Also, if I’ve missed anything, I’m sure you’ll let me know.
Recession is a period of negative economic growth... (click to read more)
Inflation is a sustained increase in the general price level... (click to read more)
Deflation is the downward price movement of goods and services... (click to read more)
Stagflation is an economic state in which inflation combines with a downturn... (click to read more)
To reflate the economy means to try to boost the level of economic... (click to read more)
Disinflation is the opposite of Reflation... (click to read more)
Want to know more?
These terms and a lot more are covered in the Bizezia publication ‘Glossary of Economics Terms’, part of the UK’s biggest on-line business library with dynamic personalisation.