Ballymena Today found the article “Falling Inflation and Deflation” for the Money Advice Service very helpful in helping us to understand what exactly is going on in the economy this week. We have heard the news reports that inflation has dropped to zero – but is this a good thing or a bad thing.
Falling inflation and deflation – what does it all mean and is it a good thing?
Inflation dropped to zero for the first time on record last month, according to ONS stats. The stats suggest this is because of price drops on food, as well as cheaper recreational products such as books, toys and games.
This could mean Britain is pushing closer to deflation, where the inflation rate has effectively fallen below zero. But what does this mean for us?
Short term impact of deflation… In the short term, deflation can be a good thing as it often causes falling prices. This can be good news at the petrol pumps and at the supermarket – filling up your car costs less than a year ago and supermarkets are cutting costs at the tills. You may also spot energy bills falling.
But what happens in the long term? The problem comes once deflation has been sustained over a long period of time. Deflation can eventually leaded businesses to either cut their prices further, reducing company profits – or undergo a process of job cuts. If this goes on for a while this could halt economic growth and job creation.