Bank of England warns on deflation

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.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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