George Osborne's response to the news that the UK has officially moved into a period o deflation has been reported to be:
Today we see good news for family budgets with prices lower than they were a year ago. As the governor of the Bank of England said only last week, we should not mistake this for damaging deflation.
Instead we should welcome the positive effects that lower food and energy prices bring for households at a time when wages are rising strongly, unemployment is falling and the economy is growing. Of course, we have to remain vigilant to deflationary risks and our system is well equipped to deal with them should they arise.
First, I think the Governor's confidence is misplaced. I know all the stories about all prices decreases creating this scenario and soon they will be pout of the data and normality will be restored. My comment is simply that this may or may not be true: we don't know.
That then makes contingency planning important and I note Osborne's comment that the system is well equipped to deal with deflation. I wonder what he means?
First we have no real experience of it.
Second, tackling it must require the creation of more money. Is QE on the way?
Or better still Green QE?
Shouldn't he be saying because right now these comments are meaningless?
Forward guidance does, surely, mean some indication should be given. If so, where is it?
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do you really think he knows what to do?
No
Not for a minute!
Green QE – we can dream. If Osborne enacts that then I will eat any hats Paddy Ashdown has left.
Me too
Osbourne needs to deflate his head – since the election it has become considerably bigger and he is danger of thinking that he is a competent chancellor.
It is just Osborne’s usual. *Whatever happens is part of the long term plan, and the long term plan is excellent in every way*
It is particularly ironic because in another part of the forest he takes the view that any action by government is necessarily bad. So he should not have a plan. Which is why he doesn’t, presumably: he has a script instead
Fiona
What you have just described above could have come right out of Voltaire’s ‘Candide’ – the £12 billion social security cuts mooted and Tory indifference to the suffering caused by this and the rest of their austerity dogma.
Is this what we are entering – the age of indifference?
Yes
As a conservative ( I use the term appropriately) said to me recently, once people had to worry about all those around them: now those at the top do not think that necessary
And he was worried by that as much as I was
exactly: ” let’s shrink the state-oops, the 1% is in trouble-long live the state.”
Deflation only matters if it is related to purchases that can be deferred, particularly if those items are produced by the UK. Deflation resulting for reduced fuel prices isn’t a big issue because ultimately we won’t switch the electricity off for the next 6 months in the hope that it will be cheaper next year. Similarly any fall in the cost of food due to transport costs falling wouldn’t be an issue either. As such deflation in some areas is a good thing.
Deflation for a few months does little harm
Long term it does
Employment reduces as wages are sticky downwards and inflation falls
Both are very bad news
Osborne is allowed to make up any answer to almost any macro event, the Press and appeased business voices will modulate the answer a tad for different audiences. Neoliberalism is not a rigorous intellectual exercise it has a set of loose DNA-like scripts, this gives it strength and endurance on transcription. The next set of Osbornomic excuses are being rehearsed and tried – I listened to Carney on R4 he is practicing his “independent” guidance. I note bloggers and newspapers are commenting on Govt running out of “levers” to pull in the next crisis – which confirms Osborne does not have control over RMS Titanic, or a lifeboat?
“lower food and energy prices bring for households at a time when wages are rising strongly”
Wages rising strongly while deflation is taking place???? And 30 billion of welfare cuts over the life of the parliament? Would anyone buy a used car from this man?