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Economist Roger Bootle Expects a Short-Lived Deflation

Originally published by Telegraph on March 29, 2015 Read the original article.

Roger Bootle’s book, “The Death of Inflation,” was published in 1996. At the time, he was derided for his stance on inflation’s demise.

Now, after all these years, the British economist feels vindicated. The inflation rate in the United Kingdom is near zero.

What’s next?

Well, Bootle does believe that deflation is likely. At the same time, he doesn’t expect the episode will be severe.

Read this excerpt from his March 29 article in the Telegraph:

At present, concerns focus on whether low, or zero, inflation could give way to deflation. I have said for some time that a brief bout of deflation was likely in the UK. Indeed, we may well see inflation turn negative next month. Thereafter, the CPI figures are likely to dip into and out of deflation for several months before the effects of the fall in oil prices drops out of the annual comparison in the early part of next year. The inflation rate should then start to edge up, although it is unlikely to reach the 2 per cent target for some time.

Is deflation a serious danger? Not the sort of deflation that we are likely to experience, which will be moderate and short-lived. That is not to say that we should be happy to live with even mild deflation for an extended period, because if you start with a negative rate, there is more chance of a downward shock bringing you to higher rates of deflation – and they do matter.

But I expect to see strengthening economic activity boosting wages before too long, and that should underpin higher inflation.

You can read the entire article by following this link:

http://www.telegraph.co.uk/finance/comment/rogerbootle/11503183/Dead-and-buried-but-how-soon-will-inflation-rise-again.html

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