Yes, everything that causes prices of everything else to go up are going down. It means more money in yours and my pockets, which means more cash to spend on other items. Hopefully new windows and doors! Even Eon has said it is going to pass on a 3.5% increase to it’s customers. I would hope that the rest of the big six will follow in the same path and pass on some of the 28% decrease in wholesale gas costs!
After six years of belt tightening, it really now could be time for consumers to start relaxing and spend some more money. In the short term, falling prices could really help stimulate the economy. The next two quarters of GDP figures are going to make interesting reading. If people are going out and spending and putting back into the economy, it should should GDP to be on target or even stronger than current predictions. Not a bad thing for those businesses who could benefit from such increases in spending.
Pain behind the scenes
If you’re a consumer, things are looking up. However in the background there remains some industries feeling the pain quite hard.
Take the milk industry for example. It was reported yesterday that more than 1000 British farmers would have their payments delayed by a fortnight, a move that would clearly worry much of the dairy industry in the UK. The most probable reason behind the delay is a drop in milk revenues caused by supermarket price wars which constantly push down the price of milk paid by stores to the farmers. I really do feel sorry for them as they are caught in the middle of a struggle that isn’t their fault, and a general public pushing for everyday goods to be cheaper. They are the ones paying the price, and they’re not the only ones.
Whilst we continue to celebrate falling prices, we have to remember that it is those at the start of the chain that suffer the most. This is why long term low inflation, or worse, deflation, is not a good thing for the economy. Yes it might provide a short term boost for consumers and the amount of cash they have, but long term it is the producers of everything we consume that get hit the worst. This is why we need to have balance. This is why the Bank of England sets inflation targets, to try and balance the economy fairly. At the moment we are very far away from that right now, and there are going to be many winners and losers from it.