Deflation in Goods

I have an admission to make. A few weeks ago I inadvertently dropped my digital camera and my Blackberry into a toilet during a rest-stop at Portsmouth FC’s training facility! The camera is now useless but the Blackberry survived intact and working fine!

Having decided to replace the camera I find on Amazon.co.uk that the same make is available for twenty per cent less than at the same time last year and perhaps a good example of the heavy rate of annual price deflation in the prices of household goods in the UK. In part this helps to explain why the official measures of inflation captured by the CPI and RPI remain relatively low despite sharply rising food, fuel and utility bills. But critics of the RPI and CPI calculation retort that few households replace their household goods every year – so price reductions have little direct impact on their annual cost of living. The Times covered this trend in an article in yesterday’s paper.

“According to Pricewaterhouse-Coopers (PwC), the accountants, the prices of everything from a kettle to a camera have tumbled by nearly 50 per cent since the early 1970s…..The biggest price-cuts have come in the past decade, as retailers have taken advantage of improvements in technology, the manufacture of products overseas and, most recently, the depreciation of the dollar against the pound.”

How long can this price deflation last? The pound is falling against the Euro and marking time against the US dollar, there is plenty of evidence of surging cost and price inflation in China and other emerging market countries.