... Deflation ...

Economic advice turned upside down

Deflation is the reverse of inflation. It means falling prices, shrinking business activity, less easy credit, lower levels of interest rates. Do you recognise these symptoms?

In the good old days, Governments could create credit, people borrowed more and bought houses, prices went up, and almost everyone was happy.

The world has changed. Yet most economic advice, and therefore financial and investment advice, still assumes that inflation is here for ever. Everyone needs to accept that deflation matters more than inflation.

Some examples of deflation

• Supermarket price wars, loyalty cards

• "2 for 1" offers

• Airline price wars

If you plan for deflation, you won't be caught out! Deflation makes fixed income MORE valuable. If you plan, instead, for inflation, you will be disappointed. Only Gilts do well in a deflationary environment.

See also the notice on the homepage.