The UK’s Finance Minister said today that interest rates might need to be cut “to an unprecedented zero”. And the Bank of England warned there is a real “risk of persistent and damaging falls in prices”. Deflation would be a major challenge for chemical companies, for two main reasons:
• Demand is deferred, because prices are falling. This is the opposite effect to inflation, which encourages demand to be brought forward to avoid the impact of rising prices.
• Inventory becomes very expensive, as it is always falling in value.
The chemical industry is suffering badly at the moment. The blog fears that if deflation arrives, as it did in Japan during the 1990’s, life could become even more difficult.