After a fair degree of speculation over the possible future path of inflation the CPI measure has now hit zero, which means the real level of inflation is probably below zero and therefore deflation is a possibly occurring.
The real question is, what does this mean? For those enjoying pay rises it must be good news; in real terms their pay rises have grown compared with what would have been the case in a higher inflation environment. Similarly, a fall in inflation will increase the real interest rate, so for savers it is good news. For borrowers, however, the picture may not be positive as this rise in the real interest rate will have an adverse effect on them. Its effect on monetary policy is as yet unclear.
Greece’s schools are ranked as lowly as any in the EU, yet employ four times more teachers per pupil than the highest ranked, Finland. Its state-owned railway has annual revenues of €100 million against annual wages of €400 million and €300 million in running costs. The average employee of Greece’s railway is still earning €65,000 a year.
When the UK started its programme of building nuclear reactors to provide electricity the government undertook a cost/benefit analysis. However, many years later some of the costs relating to decontaminating the sites where the reactors stood are still unclear, as this article from The Independent newspaper shows:
This means that the original cost/benefit analysis was fatally flawed and that has considerable implications for our understanding of how reliable these analyses are. Anyone reading this should consider the implications for HS2, which currently is the subject of some discussion. Certainly the TGV project in France has not proved to be as successful as politicians hoped: