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Inflation or Deflation?


Mercury

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I've read a lot of different commentators who have a view on whether we will sink into deflation (maybe depression) or that central bankers will have their way and drive massive inflation.  Despite the best attempts of the CBs, QE, ZIRP and now NIRP inflation remains stubbornly low.  Perhaps they should set aside their economic text books and take a look at the real world where people simply are not being paid enough to afford to buy things and have, belatedly, cut their plastic with household debt falling (government and corporate debt remains sky high though...).  House prices in London are more than a useful case study.  The social impact of the lack of affordable of housing is already coming to the fore in the rhetoric of the mayoral campaign and UK wide government policy is shifting away from the current home owner to the people who can't get on the ladder.

 

Next issues sales warning and Sainsbury's cites falling food prices as the main driver in continued deteriorating profits as price wars continue.  This is not just normal competition, people who would never have dreamed of shopping in Aldi or Lidl are doing so now because they simply do not want to pay.  Falling commodity prices (assuming that has not run its course, and I don't think so) are a big factor on the headline inflation numbers but the inflation we all experience is not here but in retail.  Has anyone else noticed retailers offering many more deals and discount incentives of late?  I have!  And that didn't really happen during the credit crunch, sure we had massive seasonal sales but not non sale time incentives.  Deflation is my bet and it is already happening.  Cue housing price crash and we have it nailed on...  For the financial markets this spells BEAR!

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