Re-rise of the deflationistas

I was one of the die hard deflationistas, predicting that we'll never see >1% base rates in any of our lifetimes again. And that the government would be printing money to battle deflation. However I did not expect the government to print hard enough to cause a 5% inflation.

I also knew there was serious systemic problems in our economy causing price inflation, besides monetary reasons. Like growing regulatory burden, cartelization, corruption, choke points, etc..

So when the 5.5% inflation came I had to back down from the deflationista argument, except I still stuck to the printing and base rate parts of it. It is not like they created inflation by having heavy consumer demand coming into the economy and bidding against each other for a limited supply of goods. This is an alarming inflation with a fall, even collapse in consumer spending.


But now I am starting to see signs of deflation re-emerging. Despite the authorities trying everything to put their beloved credit bubble, Humpty Dumpty back together again.. with falling incomes, rising unemployment, other factors are overwhelming them.

First off for younger Brits >50% of their monthly after tax income is going to housing costs. Clearly housing costs are falling. Even though the authorities are censoring any information showing declining nominal house prices. If people are unemployed no matter how much propoganda they are bombarded with they cannot pay £450,000 for a small detached house. The standoff where sellers never sell, just put the thing for sale at unrealistic prices will eventually end.


Secondly look at what is happening to the big boxes. They are seeing outright declines in yoy sales. And these are nominal numbers, so horrific/historic falls in inflation adjusted yoy sales. And they are now being underbid by super discount chains like poundland. Also immigrant merchants with low overheads are hawking imports for surprisingly low prices. The big boxes have said they are going to respond with a price war. Which they have to, because their market is starting to evaporate.

I was shopping with a lady friend of mine who doesn't have much money. And she did her shopping for under £10 at a pound store. Toilet paper for under a pound, all these brands I had never seen before in my life. I remarked to her, this is the convergence where British prices converge with Asiatic prices in the global market. Our idiot leaders wanted it both ways, they wanted British wages to converge with Asiatic wages, but for British prices like house prices to keep inflating. = profit.

This convergence can play out for years. Because right now we are still paying 10x the Asiatic price for things. Yet our workers are being forced to compete 1-1 on the global marketplace. It is so blatantly obvious where this will end.. the lowest cost producers will triumph.


The big boxes now are going to occupy the mid-level in British retail. Now that the high street died a bloody death, the ultra high end, with the new entries taking the low end.


Thirdly the interesting phenomenon of the Food Trucks. British consumers simply cannot pay for the overheads of a McDonalds. The premises, the endless management chain, advertising, middle men, etc.. Its not even a question anymore of wanting to, if you cannot afford it you cannot. Like in retail, new entrepenuers are coming in and providing a service at a cost customers can afford. Cutting out the middle men.