News from Labour Matters

It’s still deflation, stupid!

Despite Tory failure to even recognise the problem, let alone have any kind of plan to avoid it, Tom Cunningham, who works at the Centre for Economic Performance at the London School of Economics, argues in The Guardian that the threat to the economy remains deflation rather than inflation:

“The CPI figures released yesterday show that the fall in prices in January was less than expected (0.7% monthly instead of 1%), so now some commentators are saying that deflation is not such a risk. Wages and industrial prices, unlike the CPI, have continued to grow. The projections released last week by the Bank of England show inflation crawling along at 1% for the next three years – below the 2% target but still above zero, and Mervyn King says the risks to inflation are roughly “balanced”.

But emphasis should remain on keeping inflation at or above the target rate of 2%, because if deflation does happen it would aggravate exactly the problem that all recent policy has been trying to soothe.”

Read the full article.

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