Deflation doesn't mean we have all become rich

 

Image from: www.themoneyalert.com

Less than a month ago Britain officially went into deflation for the first time since 1960; it all happened after the inflation had surprisingly dropped to zero in March.

The Consumer Price Index, which measures the cost of household bills and goods, fell to -0.1 per cent in April, mainly caused by a plummeting world oil prices, with the cost of motor fuels down 12.3 per cent and a discount war at supermarkets. A fall in food prices of 3 per cent, in fact, has been driven by high competition among big chains.

Chancellor George Osborne has promptly dismissed fears that economic growth was stalling, by declaring the country was not facing a damaging deflation.

“Instead we should welcome the positive effects that lower food and energy prices bring to households when wages are rising strongly, unemployment is falling and the economy is growing,” he said.

Such a scenario should primarily have a beneficial impact on the economy by boosting consumers’ confidence through increasing purchasing power and people should take this opportunity, as the Bank of England expects inflation to rise again towards the end of the year.

However, deflation does not turn poor people into wealthy citizens.

According to data released last month by the Office for National Statistics (ONS), in 2013 around 4.6 million people, equivalent to 7.8 per cent of the UK population, were considered to be in persistent poverty. Those who experience such a difficult situation have been in relative income poverty both in the current year and at least two out of the three preceding years.

Further data revealed that almost a third of the UK population suffered through poverty in at least one year between 2010 and 2013; 19.3 million people, in fact, had a disposable income of maximum £9,525, which falls below the official poverty line.

Far too many people live on minimum wage, as well.

Chris Philp, a newly-elected Tory MP for Croydon South, has recently declared that “it is not possible to live on the current national minimum wage, especially in London,” and has asked the Low Pay Commission to recommend rises in the national rate, with London having a separate higher fixed amount.

According to the MP,  the increase would not only help people towards a more comfortable life, it will save public money, too. In fact, many families are currently having their low earnings topped up with tax credits. And if there is one thing we can be sure of, is that taxpayers are “subsiding companies who are not paying their staff properly”.