And thus we arrive at the most important (and inevitable) of all deflationary trends: demographic change. Retired people tend to consume less than their working age compatriots – thus putting downward pressure on demand as the population ages.
The bottom line is that inflation squeezes citizens’ spending, with inflation running at a higher rate than pay increases, resulting from inflation pressures.
Unlike much of Europe, Britain has, thus far, dodged the deflationary bullet. But there’s no room for complacency.
Stable wages and steadily falling prices should be a welcome combination.
The reason we will get away with it again, as we did in the banking crash, is that there is so much deflation around, inflation is not a problem.