It’s been a strange week. First, we had the inflation numbers. The consensus was that Consumer Price Inflation would come in at around 3%. It actually came in at 3.4%. RPI, used by unions looking for wage settlements and the like, came in at 4.4%. Still, while this might have come as a surprise to some, it certainly didn’t to Prosperity Capital’s Liam Halligan, a firm inflationist. “Producer price inflation is in double figures,” he said when I asked him about it. “What did you expect?”
On Wednesday came the unemployment statistics. The number of people counted as claiming benefits fell slightly. But underneath the irrelevant headline figure (remember, those with much in the way of savings can’t claim benefits), the news was all bad. Very bad.
The total number of people in employment during the three months to the end of February fell by nearly 90,000. The number of underemployed people (those looking for full-time work but only finding part-time jobs) rose to over a million. That’s the highest figure since comparable records began in 1992. None of this surprises Arbuthnot’s James Ferguson, a firm deflationist. “We’re in a classic post-banking-crisis recession,” he told me. “What did you expect?”
James and Liam are both depressed about the future. But they see it in different ways. James sees deflationary depression; Liam inflationary collapse. The problem is that every week the evidence seems to support them both. Worse, given the debt burden our economy is carrying, it does seem we have to go one way or another: there is unlikely to be a middle way.
So which will it be? This week we’ve tried to find an answer with a Roundtable: we invited two well-known inflationists and two deflationists to fight it out over a few glasses of wine. You’ll still see it was a pretty heated debate – as it should be, given that the inflation/deflation debate is the most important one there is in economics and finance. Our national future as a viable economic entity relies on figuring out where the real danger lies. And, of course, if we as individuals knew the answer, we might have a hope of protecting our wealth over the next decade or so.
Some of the argument is pretty complicated. For those of you who’d like to read more, or get more deeply into the arguments (and personalities…) of those involved, see the conversation here: Inflation or deflation – and what can you do either way?. For those of you new-ish to monetary economics, we’ve tried to make things as simple as possible by summarising the main arguments and adding a short glossary. We also welcome all reader comments on this – the debate is far from over. So if you have anything to add, please pop it in the comments section at the end.