With the continuing downward spiral of Oil prices, it seems the latest problem for the Eurozone is now deflation, ie negative inflation.
But is this a problem we need to worry about in the UK? Have been trying to get a better understanding of why there is an issue, as at face value, lower fuel prices reduces prices across the board meaning a lower cost of living. This means more disposable income, which as long as people spend it, means more tax revenue.
Or is that too simplistic?
The BBC did a post about Deflation in June last year and the upshot from that seems to be the issue is down to the volume and cost of Debt:
One reason is the effect on debtors. Prices and perhaps incomes may fall, but debts do not. If you are a business with falling revenue, or a household with a declining income, debt payments become more of a burden.
But I'm struggling to see why households would see a declining income, other than those businesses connected or tied into the supply chain of the oil industry?
Retail businesses may be reducing prices, but isn't this just passing on transportation savings along the chain? So profit wise there shouldn't be any different, with no pressure on salaries or reducing headcount?
Or is the argument that people put off buying capital items when prices are falling a strong one, meaning long delays in replacing/purchasing goods which will put pressure on retailers. So although more money in peoples pockets, it's not getting to the tills or being spent.
I'm not convinced, but be interested to hear other thoughts on it. Do you think Euro deflation is a genuine issue that worries you business wise.
