Why we expect prices to fall
Last year, MoneyWeek worried about inflation. This year we’re putting that behind us. Now we’re worrying about deflation instead. The official inflation numbers may still be knocking around 5% and we haven’t completely discounted the possibility that the unions will be able to force through 5% pay rises for members.
But look at the prices of the things that have been driving the UK consumer price index – oil, for example. Remember the forecasts of $400 oil? And the pathetic sight of Western world leaders begging the Saudis to bump up production? All gone. Today the Gulf states will be lucky to see oil stay at $100 (for what it’s worth, we suggested earlier this year that $80-$90 would be a reasonable resting place for the price). Opec, far from humouring George W Bush by looking for ways to squeeze a few extra drops out of its ageing oil wells and keep prices down, is attempting to impose production-cutting discipline on to its members in order to keep them up (so far without much success). That will all start feeding into the official numbers over the next few months.
• Read the full editor’s letter here: Why we expect prices to fall