Don’t believe the gloom-mongers: deflation will be good for Britain

Campaigning in Putney in 1978, Mrs Thatcher famously took out a pair of scissors and cut a pound note down the middle, telling her audience that the remaining stump represented what was left of the pound in your pocket after four years of Labour and high inflation.

David Cameron may soon be able to repeat the stunt — except rather than cutting a note in half he will be able to stick a bit on the end to represent the extra buying power being granted to consumers courtesy of deflation. Inflation on the government’s preferred measure, the Consumer Prices Index (CPI), has fallen to 0.5 per cent. With the price of crude oil slumping and a supermarket price war in full cry, it may well dip below zero in coming months. That is to say: the cost of living is about to fall.

There are still those who see this as a potential disaster.