Deflation has gone global

[Hannah Bell]

"Deflation properly defined is a net decrease in the money supply and credit, with credit being marked to market. Deflation by that measure went global long ago.

This post however, is in reference to sustained price drops widely (and incorrectly) referred to as deflation.

Japan wholesale prices log fastest drop since 2002

"Japanese wholesale prices fell at their fastest annual pace in nearly seven years last month, official data showed Monday, adding to worries about the renewed threat of deflation...."


In Germany wholesale prices see record decline in 22 years.

"Wholesale prices in Germany dropped 8.0 percent in March compared with the same month last year, the biggest year-on-year decline since January 1987, the German Federal Statistical Office said Wednesday..."


Chinese CPI, PPI Negative

"Please consider the following chart of Chinese Inflation..."

http://1.bp.blogspot.com/_nSTO-vZpSgc/SebfaQjzcEI/AAAAAAAAF8A/hy5jzoRhMck/s400/chinese+inflation.png


US CPI In First Year-Over-Year Decline Since 1955

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955..."


US Produce Price Index (PPI) Biggest Drop In 59 Years

http://3.bp.blogspot.com/_nSTO-vZpSgc/Seaoivnwq0I/AAAAAAAAF7o/S--_FAWPPY0/s400/PPI+finished+Goods+2009-03.png


Spare Capacity

"There seems to be a lot of market chatter today about how the dramatic fiscal and monetary stimulus is going to reignite inflation. Let's get a grip. We have a real unemployment rate of nearly 16% and a capacity utilization rate that looks about to decline to 65%. There is simply too much spare capacity to absorb to be concerned about what the government is going to do except prevent an outright deflationary environment from taking hold."





Deflation has set in. It is now unmistakable by many measures, not just in the US but globally.


http://globaleconomicanalysis.blogspot.com/2009/04/deflation-has-gone-global.html

[LeftHander]

1. I wonder how long does it take to spot a trend...

Our economy is still crashing....a long slow train wreck

[GoesTo11]

2. Good news for a lot of people

For fixed income or for anyone still employed at a steady salary, this means an increase in buying power. As soon as the big inflation kicks in, if it does, then all those people will see large drops - including many employees whose raises will not come close to keeping up with inflation.

[Hannah Bell]

6. when will this "big inflation" kick in? & what will be its cause?

[KharmaTrain]

3. The Next Year Will Change Everything...

The other day I heard a couple of bankers say that they expect the markets and economy to stabilize and turn around in the next 6 months. I am not as optimistic for many of the reasons you cite. The markets may be picking up, but I see it as a "dead cat bounce"...the markets went so low they were too tempting to the "players" who have brought the market back, but soon will take their profits and the market will fall back to 7,000 or lower...the place where many "experts" really believe is the true market's value.

Deflation is a byproduct of the clamps being put on credit...forcing companies with large inventories to dump or "eat" their losses...better to get 25 cents on the dollar than nothing. But this is short term as well as excess production abroad will turn into a defecit as factories abroad either shut down or change production...and then watch where prices go.

All the bail-outs, stimulus and government spending is sure to unleash inflation, not deflation, in the near future. Interest rates remain very low and its only a matter of time for them to rise and once that happens, watch out...we could see the banks raising rates in order to get credit flowing again and prices will be on the rise.

Enjoy the bargains now...they're not gonna last.

[Hannah Bell]

7. banks *raising* rates to get credit flowing? i'm confused.

[KharmaTrain]

8. To Get People To Invest...

There's billions sitting on the sidelines right now...either socked away in mattresses or into CDs and other long-term securities. The Municipal bond market is a disaster...hurting towns and utilities in raising cash they'll need to fulfill infrastructure projects...even with stimulus money. People are steering clear of these markets due to the low interest paid on those investments and won't go back into that market until there are more attractive interest rates. The same can be applied to those who may want to invest in emerging technologies and would be more willing to take a chance in investing if they got a 5% or more return compared to the 1 or 2% they're earning now. Getting these people back into investing puts money in the markets and banks and gets credit flowing as more capital is available to lending. Yes, it's at a higher rate, but it will be available. And, yes, it's a shit sandwich as right now it's all but impossible to get a loan or even to refinance. The low rates also are being used by banks to raise their consumer rates and fees to raise the money they're losing by the fed rate being so low.

[Hannah Bell]

9. i'm still not clear on what you're saying - banks will increase their

rates for deposits? loans? what, specifically?

[KharmaTrain]

11. Cash Flow...

Right now all interest bearing accounts are a disaster. Check your savings account and look at how interest paid has gone to zero over the past couple years as banks lowered those rates as the fed did...trying to keep the housing bubble afloat. The trade off was low cost housing and business loans, the effect was decreased interest paid for those looking in secure investments...in some cases it led the "gamblers" to get into the riskier schemes and stocks that now are in ruins. Many of those people have been wiped out, but millions of other investors have went to the sidelines when the market started to head south and are sitting on money...not investing in stocks or bonds or anything...they're locked away in whatever security they could latch onto.

It's a part of the economy that isn't talked about as this financial mess is so complex and has effected so many in different ways. The low interest rates are keeping people who are looking for investments from moving their money...buying bonds and other instruments that banks use to lend as they aren't offering the same returns as putting it into a 6 or 12 or 18 month CD or Treaury bond. When Municipals and other investment bonds start delivering higher interest, then you'll see more money coming back that goes out through loans...be it for homes or business...and the only way that will happen will be the rise in the fed interest rate.

[Hannah Bell]

12. you're saying the fed will raise its rates?

[KharmaTrain]

15. It's Inevitable...

They sure can't lower them...and keeping them low isn't helping a collapsed housing market. Sooner rather than later all the government spending will ignite inflation and with it, the pressure on Bernacke to raise interest rates. The byproduct is that it will get people who have their money in mattresses off the sidelines with more attractive rates on investments.

[Hannah Bell]

17. "ignite inflation" - in a deflation, i believe that's the idea.

[maryf]

4. K&R. nt

[rucky]

5. Why are food prices still high at the grocery?

[Hannah Bell]

10. Alabama grocery prices fall 2 percent in March

http://birmingham.bizjournals.com/birmingham/stories/2009/03/16/daily40.html

http://www.google.com/search?hl=en&q=prices+grocery+falling

[Individualist]

13. It would be nice if deflation spread to grocery and utilities expenses.

[leftstreet]

14. K&R

[hunter]

16. It's possible this isn't a problem of accounting or credit markets.

This civilization may well have stumbled upon some physical constraints, and if that's the case there will be no economic recovery.

If these constraints are something like peak oil or climate change then we have no choice but to ride the curve down to some level of sustainability.