Deflation still at 5.9%

[sandar]

Certyainly the period between 1870-90 was delfaltionary as prices dropped with technology increasing and new markets emerging....but the economy can still grow. I think it will happen again in whichever countries become net exporters of new energy in the coming devades

[nuj]

The serious nature of this horrific statistic never gets stressed by the mainstream media or by any political party.

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For a start, that's rubbish. The old "mainstream media" whinge doesn't stand up, as a simple news search would show.

Another thing - the CPI decline over the last year is in large part accounted for by interest rate declines. The HICP, which excludes interest rates, shows deflation of 2.4%, as against 5.9%. Not pleasant, but 40% less than the (misleading in this context) CPI number.

[Cassandra Syndrome]

For a start, that's rubbish. The old "mainstream media" whinge doesn't stand up, as a simple news search would show.

Another thing - the CPI decline over the last year is in large part accounted for by interest rate declines. The HICP, which excludes interest rates, shows deflation of 2.4%, as against 5.9%. Not pleasant, but 40% less than the (misleading in this context) CPI number.

Deflation is considered a cancer by renowned economic schools of thought. The RTE news at 1 conveyed it in terms of prices rising in August by 0.4%. Thats how flippant they are about it.

Do you not feel that the fact interest rate payments alone can make a 40% change on our CPI very disturbing? Is it not testament to Ireland being the most leveraged nation on the planet?

[nuj]

Deflation is considered a cancer by renowned economic schools of thought. The RTE news at 1 conveyed it in terms of prices rising in August by 0.4%. Thats how flippant they are about it.

Do you not feel that the fact interest rate payments alone can make a 40% change on our CPI very disturbing? Is it not testament to Ireland being the most leveraged nation on the planet?

Of course deflation is pernicious, especially if it's for any prolonged period.

The RTE news, which I didn't hear, reported the most recent monthly number. Their website gives the YOY CPI number.

I think that the fact that interest rates have such an effect on CPI shows that it's a pretty lousy measure, for the most part. Interest rates have a pro-cyclical effect on the measure - the very raising of rates to combat inflation increases the rate of CPI inflation, and lowering rates to combat deflation has the exact opposite effect.

The real number is -2.4% yoy. Unfortunately, given our excess inflation vis-a-vis the eurozone over the last 9 years, some deflation is inevitable if competitiveness is to be regained. We actually need more HICP deflation to achieve this, nasty as it is and will be in terms of overall economic growth. The hope is it does not become embedded as an expectation, a la Japan, and lead to paralysis of both investment and consumption.


BTW, posts containing the phrase "mainstream media" or "elite" are nearly always as ignorable as those containing "Mass Immigration" (capitals essential). And that's very ignorable.

[Cassandra Syndrome]

Loan / mortgage repayments make up the most of people's household budgets. It could be as high as 60 - 70%, so interest repayments have a huge impact. The items that increased in price were influenced by duty such as alcohol and cigarettes.

Why would you ignore a post just because it has mainstream media written in it? That's absurd and very narrow minded. The mainstream media's coverage on the global economy (bar the likes of Channel 4) are awful. It were the likes of alternative media sites that predicted the Great Depression II (capitals essential).

[20000miles]

Question for economic people: can you have deflation without a shrinking economy? Can GNP or whatever grow while prices go down?

Deflation as in falling prices? Surely yes, since it's happened before. USA experienced falling prices for 30 years after 1865, and during this time output increased fourfold.

Trouble is, the mainstream seem to think that since prices were falling, there must have been a depression during this time.

[Cassandra Syndrome]

Deflation as in falling prices? Surely yes, since it's happened before. USA experienced falling prices for 30 years after 1865, and during this time output increased fourfold.

Trouble is, the mainstream seem to think that since prices were falling, there must have been a depression during this time.

Nominal GDP increased from $9.88 Billion USD in 1865 to $15.6 Billion USD in 1895. Thats about 58% increase.

Annualised deflation was 2.18% during that time. That gives a Real GDP increase of 239%.

During that time there was the long depression that lasted from 1873 to 1879.

Furthermore that biggest Criminal Organisation AKA Federal Reserve were not in existence and money was backed by Gold. So deflation would not have been such a cancer as people and companies were not in debt up to their eyeballs.

[nuj]

Any figures for bank collapses in the period?

[Seos]

Unfortunately, given our excess inflation vis-a-vis the eurozone over the last 9 years, some deflation is inevitable if competitiveness is to be regained. We actually need more HICP deflation to achieve this, nasty as it is and will be in terms of overall economic growth. The hope is it does not become embedded as an expectation, a la Japan, and lead to paralysis of both investment and consumption.

Without the Eurozone as a whole going into deflation it can not become an embedded expectation here in just Ireland.
In the same way as you correctly said "given our excess inflation vis-a-vis the eurozone over the last 9 years, some deflation is inevitable if competitiveness is to be regained" if we consistently have lower inflation than the eurozone then inevitably we will have higher inflation than the eurozone.

[Donald Segretti]

The real problem is not so much deflation. The real problem is a key consequence of deflation, namely high real interest rates. These are now at an astonishingly high level given how moribund economic activity is.

The implication of high real interest rates is that demand for credit will shrivel. While the government focusses on fixing the supply of credit (by the establishment of NAMA etc) it seems unaware that it may expend huge political energy to restore the supply of credit onl.y to find that demand for credit has fallen off a cliff.

Public understanding of this phenomenon is not helped by the dunces in the RTE Newsroom who celebrate every time the ECB "leaves rates on hold at historically low levels".

Interest rates are at historically low nominal levels but at historically high real levels. They constitute a huge headwind to economic growth.