Global deflation?

Lynne Kiesling

Not being a macroeconomist I have little insight to contribute, but I do find October’s 2.8% decline in the producer price index quite remarkable. Not only is this the largest decline on record, it is also larger than had been forecast for October.

And, as the Bloomberg article linked above notes, the UK also experienced the largest decline in their inflation rate in 11 years.

This is certainly an economy that is hunkering down.


2 thoughts on “Global deflation?

  1. It’s not entirely surprising that we are seeing deflation, as much of the growth in asset values was based on phony valuations that are now exploding.

    My approach is to understand deflation in terms of the inflation that originally caused the rises in price. Inflation is a more involved subject, because in some circumstances, prices rise due to an acute shortage of supply (e.g. oil during a boom)
    The decline in oil prices may be a symptom, not a cause of deflation. Demand is collapsing, evidently, for the time being.
    We can now see the origin of price deflation in the property sector; without lending there are few buyers.
    so a shortage of credit is one important cause. A shortage of confidence is another.
    How can declining oil prices be deflationary? A complex question, but the oil price fall may make redundant a lot of energy development and conservation investment predicated on stratospheric oil costs. So it affects investment, it affects banks, it affects engineering works.
    the vicious aspect of deflation is its tendency to becoming self-sustaining. Lower asset values mean less wealth to owners, less collateral value, and less incentive to retain. Selling declining assets tends to drive down values even faster (look at mortgaged properties in the USA).
    This is a big subject, and I am not an economist, either, but I contribute this hoping to get an insightful dialogue going on the subject.

  2. It’s not entirely surprising that we are seeing deflation, as much of the growth in asset values was based on phony valuations that are now exploding.

    My approach is to understand deflation in terms of the inflation that originally caused the rises in price. Inflation is a more involved subject, because in some circumstances, prices rise due to an acute shortage of supply (e.g. oil during a boom)
    The decline in oil prices may be a symptom, not a cause of deflation. Demand is collapsing, evidently, for the time being.
    We can now see the origin of price deflation in the property sector; without lending there are few buyers.
    so a shortage of credit is one important cause. A shortage of confidence is another.
    How can declining oil prices be deflationary? A complex question, but the oil price fall may make redundant a lot of energy development and conservation investment predicated on stratospheric oil costs. So it affects investment, it affects banks, it affects engineering works.
    the vicious aspect of deflation is its tendency to becoming self-sustaining. Lower asset values mean less wealth to owners, less collateral value, and less incentive to retain. Selling declining assets tends to drive down values even faster (look at mortgaged properties in the USA).
    This is a big subject, and I am not an economist, either, but I contribute this hoping to get an insightful dialogue going on the subject.

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