# Fall in the rate of inflation



## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (8 Apr 2004)

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## Protocol (8 Apr 2004)

*it's 1.3%*

That's it, as i said.

The CSO today published the annual inflation rate for the year to March 2004.

1.3%.

Food prices actually fell during the past year, - 0.4%.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (8 Apr 2004)

> That's it, as i said.



Sorry I posted and then removed my post when I realised that 1.3% was the annualised inflation rate. Apologies for any confusion caused! :| 

Is a low inflation rate necessarily a good thing? Can't it sometimes be bad for the economy? Isn't a certain level of inflation required or a side effect of growth? What is a desirable level of inflation? 

I'll never get my head around macro economics!


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## Protocol (8 Apr 2004)

*inflation*

Ajapale,

Did inflation really reach 24%??  That's savage.  I knew it was high (10-20%) in the 80s, but 24%, that is crazy.


0, *low and stable inflation is a good thing*.  In fact, several central banks set *explicit targets*.  Usually 2%, or maybe a range, e.g. 1-3%.

Well if low inflation is good, then perhaps *0% inflation* is best?  But, as you mentioned, some people argue that "a little bit of inflation" is better.

Why??

Well, often the economy needs *falling real wages*, or a *negative real interest rate*.  The only way these can be achieved is to have some inflation.

Example: workers accept low nominal wage increase of 1% or 2%.  Inflation is, say, 2.5%.  So real wages will fall by 1.5 or 0.5%.  The workers see a rise in their cash wages, but in fact their real wages have fallen, making labour cheaper, and giving a boost to firms.

Similarly, the central bank want to boost the economy by cutting interest rates.  So they cut the nominal rate down to 1%, as in the USA now.

With 2% inflation, the real interest rate is - 1%, this gives a big boost to consumption and investment spending.

To answer your questions, low inflation is not bad.  There is no specific desirable inflation rate, but Central Bankers would sleep easy if it was 1-2%.


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s (8 Apr 2004)

*Re: inflation*

Thanks for the tutorial. I just find the "one the one hand ... but on the other hand ..." stuff and the seeming lack of absolutes with macro economics a bit confusing... :\


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## Protocol (8 Apr 2004)

Good to see that the rate of Consumer Price Inflation has fallen again this month to *1.3%*.

By my records, you'd have to go back to July 1999 to find as low a rate.


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## ajapale (8 Apr 2004)

*Re: inflation*

Hi Protocol, 

Cpi was 23.32% annualised for the last quarter of 1981. It was a scary time!


80Q1&nbsp &nbsp &nbsp &nbsp 15.51% 
80Q2&nbsp &nbsp &nbsp &nbsp 20.19% 
80Q3&nbsp &nbsp &nbsp &nbsp 18.84%
80Q4&nbsp &nbsp &nbsp &nbsp 18.24%
81Q1&nbsp &nbsp &nbsp &nbsp 20.98%
81Q2&nbsp &nbsp &nbsp &nbsp 17.07%
81Q3&nbsp &nbsp &nbsp &nbsp 20.13%
81Q4&nbsp &nbsp &nbsp &nbsp 23.32%
82Q1&nbsp &nbsp &nbsp &nbsp 18.87%
82Q2&nbsp &nbsp &nbsp &nbsp 21.00%

I have a nice excel graph which illustrates the point. Does anyone know the best way to post the graph? I tried pasting the bitmap but nothing happened.

ajapale


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## ajapale (8 Apr 2004)

Protocol,

Yes, July 99 was the cpi was 1.17%.

IN 1981 cpi nearly reached 24%
In 1993 during the currency crisis cpi went below 1%

www.cso.ie/

Ajapale
edited to correct figure


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## Elcato (8 Apr 2004)

*Re: inflation 1981*

As a drinker in 1981 I can confirm that the drink went from around 70p in 1980 to around £1.10 in 1981. Guess this had a lot of bearing on that inflation figure.


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## Sarsfield (11 Apr 2004)

*Re: inflation 1981*

Was the huge inflation of the early 80s an Irish thing or was it global?

Re desirable inflation rates, I'd imagine that, within reason, stability is more important than any particular number.


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## purple (13 Apr 2004)

*Re.Inflation*

Don't forget the effect of inflation on mortgages.
If inflation is 15% then your repayments drop in real terms by that amount each year, assuming that your income keeps up. That, for me, is one of the real problems with this property boom; the big loans people take out are eaten away by inflation at a much lower rate than the smaller loans that their parents took out and so real disposable income among the current young buyer will not increase as quickly as it would have say ten years ago. This will, in my uneducated view, cause discontent among many people with young families who approach middle age and still have, in real terms, a big mortgage hanging out of them.
I am gone off the point,sorry.


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## househunter1 (16 Apr 2004)

*Re: Re.Inflation*

Good point purple, as interest rates increase, the burden of debt may actually increase over time instead of getting eroded.


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