Failte Alba

Hi and welcome to the CIOBS blog.

Yes a bit of Gaelic in the heading this week and Scots Gaelic at that! Yesterday we welcomed a new group of Chartered Banker students to Drumsheugh House for an Introductory Session and two of the group had never been to Scotland before!

We gave them a guid Scots welcome. Haste ye back as they say!

Well what a week it has been never a dull moment and I am typing this before heading to a morning and early afternoon of meetings.

I can't wait!

Here's a bit of late news that was not covered in this week's news podcast.

Official figures show that UK inflation fell in October from a 16-year high,as oil and transport costs - as well as food prices - fell.

The Consumer Prices Index (CPI) measure dropped to 4.5% from 5.2% in September.

The Office for National Statistics says the month-on-month fall in the CPI figure is the biggest drop in 16 years.

The Retail Prices Index, (RPI) the alternative measure of inflation, which includes housing costs, fell from 5% to 4.2%, the biggest fall since 2003.

The RPI measure is sometimes referred to as the "headline" rate of inflation, and is often used for agreeing pay settlements,or calculating the uprating of benefits such as pensions.

Meanwhile,core inflation, which excludes volatile items such as energy, food, alcohol and tobacco, fell from the series high of 2.2% in September to 1.9%.

The CPI fall was the biggest since August last year.

"The largest downward pressure on the CPI annual rate came from transport costs where the price of fuels and lubricants fell this year but rose last year," said the ONS.

The Bank of England has said inflation could fall below its target of 2% next year - and might drop as low as 1%.

This year, the UK economy shrank for the first time since 1992 - falling by 0.5% in the third quarter of 2008.

This led the Bank of England to lower its key Bank Rate in October by 1.5 percentage points - to 3% from 4.5% - its lowest level since 1955.

With commodity prices falling and the economy shrinking fast, inflation is going to undershoot the 2% target by the middle of next year

Mervyn King, the Governor of the Bank of England, says it is now "very likely'' that the UK's retail price index will turn negative next year.

The Bank is expected to cut rates again in December, say economists, perhaps by a full percentage point to 2%, a level not seen since the 1930s.

A short period of deflation - where prices fall rather than rise - would not be a disaster, but a longer period of falling prices might be, say economists.

In prolonged periods of deflation, consumers hold off buying goods, reckoning they will be cheaper later on, according to economic theory.

This can lead to further falls in demand and output.

As firms sell less,they respond by cutting jobs or cutting wages.

Overall, consumers then have less money to spend - and demand falls yet again.

Some good stuff there for student members!

Michael (An deflated blog this week)