It's clear that inflation is not much of a threat these days. But what about deflation, a sustained period of falling prices and wages? After all, today's producer price index showed prices are falling in most sectors. And incomes certainly haven't been rising much lately, as most workers know.
The two economists I interviewed today, Jonathan Basile at Credit Suisse and Steven Wieting at Citi, don't see an immediate deflation threat.
But according to the AP, Pierre Ellis, senior economist at Decision Economics told his clients: "Deflation-worriers will find some cause for concern in the general picture, though the broad pattern remains one of gently oscillating monthly price changes."
So, it sounds like the threat of deflation down the road can't be completely dismissed. The risk is the massive government fiscal and monetary stimulus efforts don't work, and consumers become even more hesitant to spend. That, in turn could cause businesses to layoff workers, further reducing demand, setting off a vicious cycle.
Are any of you noticing lower prices at the grocery store or elsewhere? Have you found your dollar goes further than it used to? Maybe you are a business owner who is feeling a profit pinch, because you can't raise prices? I'd love to hear your observations.
Comments
I like your post. No matter what amount of debt a person has, willingness to retire is the first step
Its very intresting and Informative stuff. Women finds it difficult to manage their cost, save $1 a day and you can see the difference it makes
I personally think that deflation is very real -- and will continue to serve to undermine the banks abilities to INFLATE their way out of their problems.
Banks would love to see inflation take hold to a certain, manageable degree -- for this would afford then to price older, non-performing loans in OLDER DOLLARS and yet price ASSETS in current (inflated) dollars.
Unfortunately the western world is headed for retirement (if you will) and generationally they are turning to savers, rebelling against debt (especially excessive debt), and will be looking to downsize their four and five bedroom homes (and lifestyles) to that of twos and threes max.
Most economist, I feel, are underestimating the seismic shifts in consumer attitudes of the western world as it ages here these next twenty plus years.
Counting on the Asian nations to pick up the slack for demand is absurd. The Chinese economy for example (despite its massive population) only accounts for less than 20% of the US GDP.
We are headed down a slippery slope unless the
velocity of money picks up. You can stimulate
the economy all you want but until new tax policy
is enacted to in effect force people and businesses to spend coupled with
intelligent lending practices and old school finacial regulations are enforced we are doomed. Of course there is always a big war to stimulate the economy, which is history repeating itself.
I've noticed falling prices in the last few weeks, particularly in basic food like milk and eggs. But I think some of that is delayed effects from the speculative bubble in commodities bursting. Prices have not come down below what they were four years ago. I'm holding on to some commodities to hedge against inflation and some cash to hedge against deflation because I really don't know what will happen next.
I am a business consultant and I am charging less than I did two years ago for my engagements. I am moving out of New York into Florida to lower my tax bill. I am spending all my cash to buy a condo in Florida, and I will have no mortgage. I will save $1000 a month in monthly expenses this way on top of the New York to Florida tax differential. I am spending, but do not count this spending as spending. It is retrenching. A lot of the spending now is retrenching.
Robert Johnson
New York
Inflation/deflation.
I dunno... the government is spending wildly, and printing most of it. You'd think inflation would be a given.
To inflate/deflate, they need somthing to inflate/deflate aginst. Since there is only government demand...across the planet, and little consumer demand, and likely there will be no consumer demand in the future....caues we are soo deeply in debt..
And cause the planet is deeply in debt.
And cause USA is the only consumer nation..
And cause with all governments "printing" the dollar can't devalue aginst any other currancy.
Oil is in surplus.
No shortage in commodities.
No demand for commodities.
I'd suspect what we will see is government spending massively, and consumer demand at ongoing low levels...
So inflation/deflation, it really depends upon how much money the government borrows, and how many new wars the government decides to fight.
The consumer can't spend cause he has no money.
I'd guess ongoing deflation... unless the world decides to wage a massive war aginst Mars or sonmthing.