The Great Debate UK

Enjoy low inflation while it lasts


david Kuo- David Kuo is director at the Motley Fool. The opinions expressed are his own.-

If you are not confused you are not paying attention. Those sage words from management guru Tom Peters can be applied to a wide number of economic issues today, but none more so that to the latest inflation figures.

Question is: do we have inflation, deflation or some mixture of the two?

The answer lies in which index you are looking at?

Inflation as measure by the Consumer Prices Index (CPI) has held firm at 1.8 percent. But according to the Retail Prices Index (RPI), which excludes mortgage costs, inflation for July came in at minus 1.4 percent – that’s up from minus 1.6 percent in June.

So if you are a homeowner with a mortgage, then your cost of living is 1.4 percent lower in July than a year ago. But if you don’t have a mortgage, then the basket of goods that you regularly buy is 1.8 percent higher than a year ago.

The stickiness of the Consumer Prices Index, whilst the UK is in the midst of the worst recession for decades, poses an interesting problem for the Bank of England. In theory inflation should be lower as demand for goods and services are restrained by a fear of unemployment. Retailers, for instance, have been cutting prices to drive growth. Yet core inflation refuses to drop.

Predicting the economic effects of swine flu


dm1- Marie Diron is senior economist at Oxford Economics. The opinions expressed are her own -

A swine flu pandemic would affect the economy via various channels involving supply and demand.

from The Great Debate:

Beware reflation

jeffrubin-- Jeff Rubin is Chief Economist at CIBC World Markets. The views expressed are his own. --

Fighting the recession will not be without its costs.

Washington has already racked up nearly a $2 trillion deficit to ensure that America’s credit crisis does not lead to a replay of Japan’s lost decade of economic growth. But it's not the specter of Japanese deflation we should fear. Far from it. History shows unequivocally that it is reflation, not deflation, that is the dancing partner to these size public deficits.

from The Great Debate:

China risks overcooking the economy

Wei Gu-- Wei Gu is a Reuters columnist. The opinions expressed are her own --

While China has been outspoken in expressing concern about the United States printing too much money, those worries might be better focused at home. No country beats China when it comes to effective monetary easing.

Beijing has scrapped lending quotas, adopted a loose monetary policy and kept interest rates at a four-year low to boost liquidity and promote growth. The policy has worked. China has lent out more money in the first four months of this year than the whole of 2008. Money growth in China is up more than 25 percent this year, versus about 10 percent in the United States.  Click here for a related graph.

from The Great Debate:

Europe frets over crisis exit strategy

Paul Taylor
-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

Higher taxes? Lower public spending? Devaluation? Inflation? Investment in green growth?

European governments are pointing in very different directions as they debate an exit strategy from the global financial crisis. Despite European Union efforts to coordinate economic policy, there are clear signs that the main European economies will charge off in disarray towards separate exits.

from The Great Debate:

First exit for the Fed

fed-- Agnes T. Crane is a Reuters columnist. The views expressed are her own --

Call it a battle for beginnings and endings, and the Federal Reserve is smack in the middle.

As Fed policymakers convene for a two-day meeting starting on Tuesday, the lines are growing more defined between those who want the Fed to do more to stimulate a still fragile economy, and those who are calling for a defined exit strategy to prevent the global economy from going into an inflation-inducing overdrive.

Pensioners feel pinch from low rates


rtrt8h- Sharon Bratley is chartered financial planner at Fair Investment. The opinions expressed are her own. -

What does the decision by the Bank of England to keep interest rates at a record low of 0.5 percent mean for the average Briton in retirement?

Deflation? It’s inflation you need to watch


– David Kuo is a director at the financial Web site The Motley Fool. The views expressed are his own. –

david-kuo_motley-foolWhat are consumers supposed to make of the latest inflation numbers? Do we have inflation, deflation or a bit of stagflation?

from The Great Debate:

Let sleeping shadow banking systems lie

James Saft Great Debate -- James Saft is a Reuters columnist. The opinions expressed are his own --

Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution -- debt destruction and inflation.

The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.

from The Great Debate:

Commodities send coded clues on inflation

John Kemp Great Debate-- John Kemp is a Reuters columnist. The views expressed are his own --

After an 8-year period of remarkable stability, the ratio between gold and oil prices has broken down spectacularly.

The relative rise in gold is consistent with other indications that the market is bracing for a delayed upturn in inflation between 2010 and 2012.