And now the bad news...

	Subscribe
	Follow

And now the bad news...
Make up your mind, BBC news
24/03/09

Here's a story from the BBC about how bad it is that inflation is down, and in addition how bad it is that in some areas, inflation is up.

The bad news for you:

Mortgage payments are lower
Energy is costing less
Many consumer goods are cheaper
Some food prices are going down

Apparently all this is bad for the economy. I'm no economist so unfortunately I am not able to understand why the government cut VAT rates and the bank of England lowered the interest rate in order to force prices down when apparently that is a Bad Thing.

But don't worry, the BBC have stepped in with the explanatory article noted above which concisely outlines these two new elements of bad news that readers may not have been aware of:

a) Prices are down which is bad for the economy, ergo bad for everyone
b) Some prices are up. This is very bad too.

Well done the BBC, and thanks for the heads up.

The headline of the article is about the 'unexpected' rise in consumer prices (that I told you readers about back in November, remember). The second half of the article is recycled from the article they obviously hurried out this morning in response to the new figures that show that inflation is down (which also isn't news, by the way, as anyone who wanted to know this could have worked it out it months ago).

I strongly approve of the BBC in general but I find their news reporting to be downright irresponsible, and as a respected and extremely widely used source of news I think that they are responsible in a big, big way for the escalation of the 'credit crunch' into what they are now delightedly calling a recession.

In case you were thinking of reading the rest of this 'entry', I should warn you that it doesn't really go anywhere and is more or less just a series of unconnected ideas that I thought I could draw some sort of conclusion out of before discovering that, in fact, I could not.

You may remember that I mentioned in my blog the meaningless nature of lowering the VAT rate when imported goods are costing wholesalers 30 - 40 percent more than they were a year ago, a price increase which will inevitably be passed on to the consumer if the business is to maintain its profit margin. Any consumers that did try to pass on the 2.5% discount on VAT to their customers may have been surprised to see that 2.5% makes sod all difference when the price increase is 40%.

In hand to mouth industries like "hobbies and toys" and all imported fresh food, where the goods are put on sale almost as soon as they are imported, the price rises were immediately apparent in December (more on food prices later).

However the clothes industry had a different set of problems all together. Importing costs will have a delayed effect on the clothes industry, so presumably the clothes they are buying in now at crazy exchange rates will be on sale at their new, increased prices some time later in the year. In the mean time every major clothes retailer has had sale after sale to clear the stock they've got now, I assume to cover some financial crisis of their own that I don't understand.

Anyway any clothes retailers that survive this mess will sooner or later have to start selling at higher prices in order to keep making money and stay in business. So any drop in inflation caused by comparing clothes prices in December 2008 to those of December 2009 can probably be ignored for the time being.

Now apparently it's also bad that mortgages are costing people less, but surely, oh, surely that's why the interest rate was decreased in the first place?!

Oh, and here's the best one. DVDs are now cheaper than they were. I didn't notice the BBC crying about it when VHS videos went out of fashion and lost all their value. Did the BBC compare the cost of buying films on Blu Ray to the cost of buying them on video three years ago? Well what a surprise, it's the same price. Idiots.

The reason that deflation is a bad thing, apparently, is that it stops people from spending money because they think that prices will go down even further and that if they buy now they will be getting ripped off. But the prices that have gone down are clothes in sales (and the reason they are on sale is to be sold quickly and cheaply, a tried and tested measure), and the cost of mortgage repayments. If I had a house, I don't think I'd be holding on to my mortgage repayment and telling the bank that I think it will be cheaper next month.

I am a consumer, and I have been diligently spending every penny that comes my way throughout the credit crunch, largely on things I don't really need. Most things cost the same or more than they did before Le Crunch, I am pretty sure of it.
The one area where everything definitely costs more is food, which everyone has to buy.

I just don't buy this deflation stuff, I really don't.

As a side note, I would like to remind readers that food prices actually rose dramatically at the beginning of the summer of 2008, which was around the time the phrase 'credit crunch' was first used, and not long after Northern Rock hit the rocks. The increase in food prices hit a lot of people fairly hard, but it wasn't due to interest rates, VAT or exchange rates. It was due partly to a general shortage of food across the globe (as far as I know), but mainly and fairly directly for fresh food like meat, it was due to the sudden crippling rise in fuel prices. The fuel prices have since gone down, and according to my survey, so has the price of meat.

My survey studied the change in price of one product in one supermarket - Tesco's 250g packet of lean minced beef. Price in February 2008: Ł1.28, price in summer 2008: Ł1.96 (approx), Price now: Ł1.68. The price rose a lot, then a bit more, then a bit more and then it fell gradually to the almost acceptable price it is at now. This correlated almost exactly with the fuel price rise.

My point is basically that although any idiot could have foreseen that there would be a credit crisis in the UK due to irresponsible lending by all the banks and irresponsible borrowing by all the people, the balance was finally tipped by the increase in fuel costs over the summer which must have affected businesses of all kinds all across the country.

Follow Dermot (MrsNicolaRain) on Twitter

Comments about This Article

Economics makes my head hurt. I think it makes most other peoples heads hurt too. That's probably why the g'mnt reduced the VAT last year. Not becasue they thought it would solve the problem, more as a diversionary tactic so that stupid people like me think that something is being done to improve the situation, even though it isn't. Comment By: The Totster, 25 Mar 2009, Rating: 5/5

Comment on This Article Your comment will be added automatically once you click on submit.
Your name:
Comment:
Overall Rating out of Five: ZeroOneTwoThreeFourFive