The falling price of oil set to assist inflation rate
As we saw when inflation started to rise towards 5%, the impact which the price of oil has on the inflation rate is enormous. Any business or manufacturing process which involves transport or the use of oil or similar fuels saw prices balloon earlier in the year and a requirement to pass on much of the increased costs to consumers. However, we are now at the other end of the spectrum as the price of oil continues to fall and inflationary pressure, although it has not fallen as much as some unexpected, has severely reduced over the last few weeks. So what next?
The next major issue for the government is the potential for deflation which is a serious matter and can literally plunged an economy into depression in a very short space of time. As manufacturing costs continue to fall there will be pressure to pass on at least some of the cost reductions to the consumer which will then reduce profitability and place pressure on businesses to reduce their cost bases.
The obvious way to reduce costs is to reduce the number of employees which will then place pressure on the economy with less money available to spend on the high street which then places further pressure on businesses to reduce their prices and so on. If we enter a deflationary period the future would be very difficult indeed.
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