Are falling prices good for us?

As the economy experiences ‘negative inflation’…

Are falling prices good for us?

Tom Baldwin

Things are officially getting cheaper! Figures released last week show prices fell in the UK in April. Negative inflation hasn’t happened in over 50 years.

Tory Chancellor George Osborne has claimed the 0.1% fall in the Consumer Price Index (CPI – a measure of inflation) is “good news” for us and for the economy.

However, the CPI should carry a ‘health warning’. A recent poll by the Mirror showed 87% of its readers didn’t feel like prices were falling. In fact rail fares and petrol prices continue to rise and housing costs are rising rapidly.

If inflation goes down then debts also get bigger in real terms and British households have never owed so much.

On the face of it falling prices sounds good but it reflects a weak economy and a squeeze on living standards. A big factor in the latest figures was the collapse in the price of oil last year, itself reflecting the extreme weakness of the world economy.

If deflation persists then it will lead to a vicious circle. People will buy less if they expect goods and services will be cheaper in the future. Companies will try and cut employees’ pay and conditions to maintain their profits. If people’s pay is squeezed they’ll buy even less, prices will continue to fall and the cycle continues.

A deflationary spiral like this is very hard to get out of. Japan was stuck in one for most of this century. Yet a majority of economists are playing down these dangers, saying that the recent fall in prices was merely a ‘blip’. However ‘core’ inflation also fell to a record low level and CPI is expected to hover precariously around zero.

The 2008 world economic crisis revealed the short-sightedness of most capitalist commentators who are willing to believe everything is rosy as long as there are profits to count.

Certainly Osborne doesn’t seem to be paying much heed to the warning signs. His so-called ‘stability budget’ in July will cut billions more out of the economy and increase the pressures toward deflation. Potential tools for countering that effect, such as lowering interest rates or printing money, have already been extensively deployed and so are not available or will be less effective.

It seems the Tories will stop at nothing in their mission to rob from us and give to their rich mates. That is the ‘greed is good’ logic of capitalism where profit comes first, at the expense of people’s lives, and even of the stability of the system itself. Its unplanned, anarchic system of competition means that crises are inevitable.

Only a democratic socialist plan of production can match supply to demand, end the instability and the opposing threats of rising prices or deflationary depression.