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No, it really doesn't.

Housing is 50% of my budget. It's 50% of everyone I know's budget, or more. It is most certainly not getting cheaper at all, it is skyrocketing.

I don't care what 'inflation rate' the lucky few that own outright face. Why should I? They have won. They've completed the game. Inflation could run 15% for years and they would still win.

If you are going to define inflation on such a ridiculous basket that it really is irrelevant what the prices move to then don't pretend that it's a useful indicator of anything.

That is the problem, the ONS office for national statistics was tasked to come up with a new inflation index that did have some element of housing costs CPIH.

Unfortunately the last government didn't like the results and the ONS was to to go away and try again.

Another problem if the basket of goods used has formerly expensive items like DVD players and Computers that over time experience massive price deflation - it skews the figures

The core issue is using irrelevant items.

Any luxuries in the inflation basket immediately means that it is only relevant for the top 50% of the population.

If you are rich then inflation is just annoying. If you are poor then it is catastrophic. So it makes sense to focus on the latter.

These days a dvd player and a computer are not luxury items (in the UK)

But when they where added to the index they where a lot more expensive than now - which is one sneaky way you can fiddle the inflation figure.

After 50 straight years of inflation, I get amused at the fear mongering that begins with a supposed -0.1% negative inflation rate.

The greatest trick the keynesians ever pulled, was convincing the world that some inflation is healthy, and all deflation is cause for fear.

My understanding is that a real deflation would crash the current financial system. Savers in fiat are paid interest from money created from debtors taking loans. In a deflation, the volume of money is reduced. Debtors instead of having their debts inflated away, have their real debts increased. Triggering defaults, triggering destruction of money, triggering further deflation. Savers don't win by having hoards of cash since their assets are the liabilities of the defaulting debtors - which are going up in puffs of smoke.

For this reason, central banks will run interest rates down to juice more inflation....oh wait...they are already at near zero...

I guess there is always deficit spending to get things going again...
It can be look at how property prices in Japan crashed negative equity is never a good thing
Japan's real estate bubble crashing had nothing to do with deflation. The claim that it did, is one of the greatest myths in all of economics. They've had zero net deflation on their consumer price index since ~1989.

The US dotcom bubble imploding was also not deflation.

Japan got a real estate bubble from extreme monetary expansion flooding into the economy in the 1970s and 1980s. They got a popped bubble when that fake economic party ended with monetary expansion falling to single digits in the early 1990s. The reduction in that rather massive monetary expansion forced their economy back to reality.

The US real estate bubble occurred in part for the same reason. The Fed juiced the economy after 9/11 to attempt to avoid a recession.

When reality hit, Japan shifted to accumulating vast amounts of debt to fake a better economic condition than what they really had. That overwhelming debt has continued to drown their prospects as the years go by, sapping growth potential.

You can see this same exact scenario playing out in China right now.

A bubble imploding is not deflation, just as price contraction on the CPI is not inherently deflation.

See: flat screen tv prices, computing prices, etc. The US enjoyed decades of general price stability and contraction due to vast automation and economies of scale after the civil war, none of which was deflation (monetary contraction).

Negative equity is a damn sight better than unaffordable housing.
So some properties in japan once crashed after a boom?

As opposed to 80-100 years of devaluation of the money that you earn, save and spend?

A stated above 'the greatest trick the Keynesians ever pulled off was making everyone fear even the slightest deflation, while convincing them that year-in, year-out inflation as not only natural, it was a good thing.

The main benficiaries of inflation are the people who get to spend the newly minted money first - because they get to use created money to buy assets at the valuations for the existing amount of circulation. By the time the inflation works it's way down the chain, your cup of coffee has jumped 50c but you haven't had a commensurate increase in income.

The problems in the UK started a lot earlier than when property prices started climbing. Everybody started getting mortgages for their houses and flats instead of renting something. Credit and debt runs that country more than anywhere else I have seen. People get payday loans for Christ's sake.

That's not a healthy sign, and I don't think that was the fault of "them". Individuals did that.

It is a combination.

Policies from the government over the last couple of decades have combined with people's greed, and well we are where we are today.

Individuals are of course to blame too, but it is hard to pin point who got the ball rolling.

It got a big push from Blair and Brown. Their entire strategy seemed to be to get people to generate as much debt as possible, to raise as much tax revenue as possible to spend on NHS, education, and all that good stuff. To be honest, I'm surprised they managed to keep the racket going for as long as they did.
Why are you attacking mortgages in the same paragraph as payday loans?! They're substantially different things.

Owning your house isn't a bad thing if you can afford it and its value doesn't tank. The buyer is largely responsible for those things. Further, most homeowners treat their homes as an investment. They do what they can and trade up when they can afford [to mortgage] something better. When they retire, they trade down and release 50 years of equity.

Yeah pensioners with money. That sounds horrid.

The UK's housing issues are far more to do with the inadequacy of rents. Soaring rates (underpinned by flat welfare rates). Unfair terms. Agents that lump on their own hidden fees and arbitrary terms. In more than one case in my past, my rent has been substantially more than the equivalent mortgage would have been.

Because common sense its better to investing in something than pay the same or higher to rent it.

Renting would have to be a LOT! cheaper than owner occupiers to make renting a rational decision.

Only if your investment is likely to increase in value and you can handle the continuous maintenance costs and you can take the risks associated with ownership and you can take the risks associated with mortgages and you want to tie a rather heavy anchor to your legs.

But if all these are true, then, sure, you should buy your own place.

Payday loans in the UK have been around for a long time and well before that you have Pawnbrokers
FT analysis of error in calculating rental costs

http://www.ft.com/cms/s/0/09894118-a899-11e4-bd17-00144feab7...

When housing is 50% of your budget, I really don't see how a "drop in sea fares" is very relevant...

Nothing except housing is relevant. Nothing at all.

For a UK citizen buying a home (or renting cheaply and saving) is the thing to do. It is the first step along the way to retirement. It's the only thing that matters.

If housing is cheap we are rich. If housing is expensive we are poor.

Hell, the fact that 'stuff' is getting cheaper may well be because demand is repressed by the fact that everyone is scrambling to pay the rent and has no disposable income.

I maintain that the price of stuff is totally irrelevant. We can live without stuff (regardless of whether the average person actually does). We can't live without shelter.

Rent for my 1-bed flat in London zone 3: £19000/year.

Can London really continue to have an interesting tech scene under such circumstances? Tech wages (outside the financial sector) are around £30k-£60k.

Then you are paying way too much. There's lots of smart 2 beds in Putney for the same price - zone 2, close to the high street & shops/mall/supermarket, 5 mins walk from railway (17 mins to waterloo) or tube (20 mins to earls crt, south ken etc)
Whereabouts, specifically? 'Zone 3' varies quite a lot; I recently moved out of a 2-bed flat in zone 3 which was 12K/year. It was a large 2-bed as well: main bedroom could have held 3 double beds, living room was about twice that size, large kitchen (huge by London rental standards) with room for a dining table, garden. Rents are increasing by about £1,000-1,500/year, but that doesn't account for the difference. I suspect you are talking about a pricier part of zone 3.
A quick search on e.g. rightmove.co.uk suggests there are multiple studio flats and one beds in the Shoreditch / "Tech City" area (some in zone 1) in the £14K-£15K pa range. Still not great I know especially on a £30K-£60K pa salary, but significantly cheaper than £19K pa, and the savings could help you start building up a deposit.
Good question. I think it will, but I think other cities will continue to draw talent.

http://www.telegraph.co.uk/finance/yourbusiness/11390230/Bou...

I will venture a guess - it's a nice and refurbished (or newly built) apartment, unlike majority sub-standard quality accommodation in London, thus the price. I am paying more or less the same for a studio in zone 1.
Housing is expensive in London, but £19,000/year (£1,5833/month) is way too much for zone 3. You can find cheaper and closer...

I'm living in zone 2, and rent is £1,300 for one bedroom flat.

Agreed. I think what the government meant to say was 'we ignored the thing that is going up in price, so there is no inflation'.
So, how long before we reach a deflation spiral as more and more people hoard their money in hopes that they can buy more stuff for it tomorrow than they can buy today which will totally crash the economy? Just a bit more of this and bitcoin will start to look pretty good!
In the UK hoarding is also known as "trying to buy a house". I've been hoarding for nearly a decade and I'm almost there!
Sadly house prices rates are way higher than my hoarding rate. I'm further away from being able to buy a house than 5 years ago.
Name a single deflationary spiral that has happened.

Identify how much spending you can postpone until next year.

Reflect if a deflationary spiral is even remotely likely.

> Name a single deflationary spiral that has happened.

None whatsoever.

> Identify how much spending you can postpone until next year.

Everything except for life's necessities.

> Reflect if a deflationary spiral is even remotely likely.

It isn't but it's an interesting thought experiment.

A world with a large deflation is probably a world in which all natural resources have been harvested and the only things that still flow freely are sunlight and rain.

The extremely strict monetary policies of German president Hindenburg, a reaction to the hyperinflation of a few years before him, caused a deflationary recession that directly preceded the rise of Hitler.
Uh, is this a trick question? Japan?
> people hoard their money in hopes that they can buy more stuff for it tomorrow than they can buy today

The computer and car industries (both manufacturing depreciating assets) seems to have managed over the past decade/century

>hoard their money

I'm not sure about you, but I've always called that 'saving'

Right, unless you're stashing currency into your mattress or burying gold bars in the yard, your money hasn't gone anywhere. It's in the bank, which is the lending it out to those who have a a better user for it. Hoarding is a an invented scary word for saving. Saving is the underpinning of all investment, and investment is the key to productivity gains. Productivity gains are the key to increased living standards.

To then turn that upside down and say that saving makes things worse is only possible by using the word 'hoarding' as it conjures images of a fleeing deposed lord burying the family treasure in a field.

In reality, returning economies to health requires a stable or increasing rate of savings.

The problem is that a Fetishistic obsession with 100% cash savings instead of actually investing in something is not a good thing for the economy.

It also leads to bizarre outcomes where foolish pensioners invest in exotic and risky cash like instrument's like PIBS instead of 100+ year old investment trusts.

Yes, but you're saving to accumulate an amount with some particular purpose, usually not because your money will theoretically buy you more tomorrow (likely it will buy you less in the normal inflationary version of the world).

Hoarding is something like but not quite exactly the same as saving.

Does this include pump prices for fuel?
This. Zero (or negative inflation) today is mostly due to lower oil prices and slower increase, even decrease, in non-processed food prices (at least it's the case in parts of continental Europe). Core inflation, which excludes volatile stuff, in the UK is 0.8%. Although slowly decreasing, it's still well above 0%. Core inflation is here the number that matters.
Both (core and straight inflation) numbers matter, they have different uses. Food and energy costs are important parts of inflation. For some uses it can be interesting to exclude these, yielding an approximation of the inflation with less volatility.

Oil prices for example have been coming down long enough that it's not noise re economic effects any more, so it would be bad to exclude the effect of cheaper oil.

Yes. The ONS maintain an infographic for how they calculate CPI at http://www.ons.gov.uk/ons/infographics/how-cpi-is-calculated...
Well that accounts for the fall then. Pump prices have come down. (Let's not get into whether they've come down in line with world fuel prices.)
also known as deflation.
Apparently it needs to be sustained to be deflation.
Nope, I don't think so. That's just a political talking point.

Chancellor: "Negative inflation is not damaging deflation"

So it's not "damaging deflation", but it's still deflation.

"Economists [...] say proper deflation is a long term term trend of declining prices [...]"

So it's not "proper deflation", but it's still deflation.

We could also s/inflation/negative deflation/ and that would be absolutely correct.

They are avoiding the word for fear of the connotations of a sustained period of deflation. Which will actually make the problem worse, as it sets a precedent for a changed understanding of the word deflation. So next time everyone will be even warier of using the term. Instead they should accustom people to hearing the word without thinking "OMG! WE ARE ALL GOING TO DIE!!1!".

not only in the UK