Ignore inflation – deflation is the real threat to your wealth

Everyone is fretting about the risks of runaway inflation in Britain. At first glance, that seems sensible. But it's not. The real threat is deflation, says James Ferguson.

With UK inflation (as measured by the consumer price index CPI) still well above the Bank of England's target rate, the press is fretting about the risks of runaway inflation. At first glance, that seems sensible. Quantitative easing (QE) is effectively money printing, and is now on track to reach almost 20% of GDP. That looks very inflationary.

But in fact, rising prices are not always the same thing as inflation. That may sound odd. Yet while it is undoubtedly true that more expensive heating bills, petrol, warm clothes and supermarket shops inflate our cost of living, it is not true to say that they are inflationary. Just the opposite, in fact. When the price of imported consumer necessities goes up, it acts like a tax only you don't even get the boost of extra government spending to go with it.

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.