That said, the onset of deflation is simply reversing previous inflation across most consumer spending categories, returning prices to levels seen 1, 2 or more years ago. The folks at the CSO kindly sent me detailed historical data for the CPI Detailed Sub-Indices (mid-December 2006 base) and some of the trends are quite amazing.
The overall CPI index is now back to where it was in March 2007 (having peaked in September 2008), but other sub-indices have seen sharper - much sharper - contractions, including:
- Breakfast Cereals: back to the price levels of December 2005
- Pork: back to November 1989
- Poultry: back to October 1992
- Fruit: back to September 2002
- Potatoes: back to May 1998
- Coffee: back to July 1997
- Clothing and footwear: lowest price levels ever - half the price levels of November 1989 (earliest data for historical data indexed to December 2006)
- Housing, water, electricity, gas etc: back to June 2006
- Private rents: back to November 2000
- Refuse collection: back to July 1995
- Furniture and furnishings: back to June 1994
- Household appliances: back to May 1991
- New and second hand cars: back to July 2002
- Bicycles: back to September 1997
- Information processing equipment (PCs etc): lowest ever - index of 54.8 in July 2009 versus 423.3 (on the same basis) in November 1989
But overall, deflation has certainly meant that consumer spending power is now going a lot further. Only problem is consumers are not spending - witness the retail sales data. Right now it isn't value for money or incomes that are holding consumers back (even allowing for unemployment and rising income taxes), rather it is fear. Fear that the money they have available to spend today may not be there tomorrow.
The question is: at what point do the 'bargains' on sale become so persuasive that consumers start spending again? Or will that only happen when inflation sets in (as it inevitably will given trends in prices of sugar, coffee and wheat) and people fear missing out on the bargains?