Deflation: What's in Store?

Everyone likes to treat themselves to a little something now and again and one such way to do this is with some chocolate. Gone are the days when you could buy a Freddo bar with your spare change of 10p since its current price is now a huge (well, relatively) 20p.

This price rise, not sudden I hasten to add, is inflation in action. Inflation is a persistent increase in the level of prices and we measure what level inflation is at by comparing prices to the same month the year before. And not just any old prices are measured either, the Office of National Statistics has its own ‘basket of goods’ of about 600 different goods and services which are used for this comparison.

The target rate of inflation set by the Bank of England currently stands at 2.0%. This is also the same for many other central banks. This particular rate ensures that there is just enough economic growth and thus paves the way towards a ‘Goldilocks economy’.

However not all inflation is positive. We can also get deflation which is negative inflation. This has already set in, in the Eurozone and is a threat looming on the horizon for the UK.

Just to clarify; low inflation is not the same as deflation!