After a period of inflation there has, historically, always been deflation, and even if the latter has been rare of late, there is always a return to more normal rates. The simple fact is that despite what politicians and the Bank of England claim, inflation does not persist.
One possible answer is that when inflation arises people change policy so as to reduce it. Maybe.
Another possible answer is, Oh, Yeah?
The correct answer is “Total bollocks”
Has the inflation in Venezuela ended yet? If not, we do not know whether it will be followed by deflation.
I note that Murphy does not mention disinflation (a fall in prices) but deflation, a fall in economic output. Of course Murphy is wrong in his assertion that inflation is *always* followed by deflation but the horrendous inflations like Weimar and Zimbabwe and Venezuela and Wilson-Healey in the UK and Russia (1917-24 and 1990s) have resulted in falls in real GDP=deflation. [I cannot say with certitude “always”, just every instance that I can remember]
An unbiased observer might conclude that hyperinflation was a bad idea …
“inflation does not persist.”
I guess it depends what you mean by persist. In 1970 in the UK it was 6.37%. It peaked at 24.21% in 1975. It didn’t drop below 6.37% until 1983.
To have £100 of 1970 spending power in 1983, you needed £458
Between 1209 and 2022 the UK Retail Price Index increased by a factor of about 1700x.
It’s fair to say that the inflationists have the upper hand.
Does he really mean deflation or does he mean inflation eventually comes down because I don’t remember any deflation after all the inflation increases I’ve lived through?
There’s a lot of people out there who think falling inflation means prices going down not the rate of price increases slowing and I wouldn’t be surprised if he was in that group.
Most of the article is an angry potato condemning a journalist to burn in hell for disagreeing with him. There has never been a less suitable person to be a professor
@ BiND
I remember deflation, not sure I remember disinflation (apparently that happened in 2009 when prices declined 0.53%, but that wasn’t noticeable enough to be memorable).
Deflation = real GDP going down 1974/5, 1975/6, 1979/80, 2008/9, 2009/10, 2020
@john77: That’s not how I’ve ever seen anyone use the terms so I looked around. Every source I could find says deflation = general level of prices coming down (a negative rate of inflation), disinflation = rate of inflation coming down.
Prices: P
Deflation: dP/dt < 0
Disinflation: d²P/dt² < 0
Deflation may coincide with recession/depression, the real terms reduction of GDP, but they're not the same thing. UK inflation peaked at 5.2% (CPI)/4.8%(CPIH)/5.0%(RPI) in annual terms sampled monthly in Jul 2008; the annual figures for '08 were 3.6%/3.5%/4%, for '09 2.2%/2.0%/-0.5%. The only measure of inflation which was negatve in either 08 or 09 was RPI, and that's the only year it has been since 1949.
@ TomJ
A recession is two or more quarters of decline in real GDP. A depression is a period of significant reduction in GDP.
According to your (mis-)understanding you can simultaneously have inflation and disinflation! Doesn’t that sound ridiculous to you?
When I studying some (very elementary) Economics, deflation was defined as a contraction in economic activity; this, in extreme cases, tended to *lead to* a fall in prices.
I find it odd, john77, that someone would choose to use what sounds like an opposite of something to describe something totally different. Any idea why?
One can easily imagine the value of money increasing as an economy contracts. Falling demand would do that. But one can also imagine the value of money increasing as an economy expands. That should naturally be what happens as factor productivity rises. It’s governments print money intentionally to cause to cause inflation, to prevent that.
Well may they be fucked with the rough end of a pineapple wrapped in barbed wire for doing so.
Between 1209 and 2022 the UK Retail Price Index increased by a factor of about 1700x.
Amusing statistic. But for a large slice of the earlier period it’s not really a money economy. So you can get strange price information from it.
/i/Amusing statistic. But for a large slice of the earlier period it’s not really a money economy. So you can get strange price information from it./i/
Fair point. The increase is 100x since 1915, or 10x since 1975.
@ bis
Deflation occurs when a nail punctures the tyre on your bicycle or your football and it shrinks as the air escapes: it appeared to be a good analogy for a shrinking economy.
Inflation of the money supply will, unless productivity is rising faster, lead to a rise in the general level of prices (too much money chasing the same volume of goods). Sixty years ago “inflation” was used as a convenient shorthand for “inflation of the money supply”. Thirty years ago hardly anyone knew that “inflation” was a convenient shorthand
Deflation occurs when a nail punctures the tyre on your bicycle or your football and it shrinks as the air escapes: it appeared to be a good analogy for a shrinking economy.
So you’re saying pressure is analogy for purchasing power. More molecules of air/money in a fixed volume = higher pressure/lower value of money. Presumably your pump/nail is the cunts at the BoE? But economies aren’t fixed volumes. Double the size of your economy/tyre/ball, pressure halves/value of money doubles. Why we talk about growth & contraction/recession. And as the CatBoE really don’t have a clue what’s actually going on in the economy in real time, they use the pump when they should be leaving well alone. These recent times, any excuse.
Let’s be honest. Would you fancy driving any car if the CatBoE were working at Kwik Fit?
In this analogy, Murphy is the fitter with halitosis & a speech impediment thinks you torque up wheel nuts anti-clockwise.
@ bis
“Economies aren’t fixed volumes” – that’s a core element of the analogy. “Pumping up” the economy isn’t intended to increase the pressure but the volume.
The BoE’s job is to control the banking system, with a secondary role that is supposed to control the rate of inflation. Managing the economy is one of the responsibilities of the government.
Between 1209 and 2022 the UK Retail Price Index increased by a factor of about 1700x.
That’s an annual rate of under 1%. The power of compound interest means 1% applied over 70 years is a doubling.
ManagingAttempting to manage the economy is one of theresponsibilitiesdelusions of government.Pumping up” the economy isn’t intended to increase the pressure but the volume.
Haven’t they just conclusively proved that “pumping up” the economy reduces the size of the economy? It’s not as if the UK’s productivity & growth figures are anything to be proud of, is it?
@ bis
Over-inflating the money supply is a bad thing as is pumping so much air into your inner tube that it bursts, but judicious, not excessive, pumping when there it is suffering from, or is at risk of, deflation can be helpful. Keynes was right, the self-styled “Keynesians” are wrong
At least we didn’t have youth unemployment of 50% like Spain, and UK GDP/head is reported to be 61% higher than Spain’s.
You think we don’t sort of nutters here that you have? This is a country thinks it’s reducing unemployment by the wholesale increase in public sector employees.
@John77: Yes, of course you can have inflation and disinflation at the same time. Just not inflation and deflation. Disinflation is not the opposite of inflation, deflation is. Disinflation is a term for the reduction in inflation. Here is on of the myriad sources I found defining it thus. I’ve not seen any using your definition; I will, of course, be happy to see some.
I think john makes the same mistake Spud always does. Money is just a token of value exchangeable for goods & services. So the value of the token can only be a reflection of the total value of goods & services in an economy. All fucking around with the money supply does is change who gets to hold those tokens of value, depending on who gets the created money/loses the cancelled.
One can ignore assets because their value only crystallises at the instant they’re bought/sold. When they’re exchanged by buyer/seller for those tokens of value. A zero sum game. Otherwise, their value is illusory. Thus “investing in infrastructure etc” is just consumption of goods & services (& opportunity cost?). There’s nothing particularly virtuous about it except on its own terms.
That’s how it looks to me, anyway. I’d be interested to know where I’m wrong.