It would seem intuitively obvious that low inflation is good for consumers, because costs are not rising faster than their paychecks. The problem with high inflation is that even with "cost of living" increases there is a time lag between when the cost of goods increases and when you get your raise. But recently commentators have been saying that "Low inflation introduces uncertainty". This is nonsense. During the high inflation "Eighties" I remember commentators saying "High Inflation introduces uncertainty". This is not quite true either. The truth is that steady inflation, whatever its level, if it can be relied upon to remain steady, does not introduce uncertainty. Changing … [Read more...]
Deflation or Inflation – Which is it?
By Tim McMahon, Editor It seems the debate on whether we will be facing inflation or deflation is heating up. This week I received emails from two different subscribers insisting that I was wrong. Well that is always a possibility but we will see... The first letter I received was from Jeff L. it said, "Your current "Annual Inflation" chart, graph, and commentary are very helpful. Thanks very much. The data would appear to contradict a recent article on your own site predicting a long period of deflation." My response was, "Personally, I think we are in for inflation. Robert Prechter (who is much smarter than I am) believes it will be deflation. At this point we are on a “knife … [Read more...]
The Calm Before the Inflationary Storm
I must be getting old. Things seem to change awfully quickly. It seems like just yesterday that gasoline was well over $4.00 a gallon and inflation was 5.6%. It was July 2008 and inflation was the hot topic, everyone was worried about costs climbing exponentially. It seemed like every time I went to the store things cost more. Oil was a speculator’s dream and a car owner’s nightmare. And then came the crash. Oil prices came crashing down along with the stock market and the banks. The big news was deflation. The media was beating the drum about how bad deflation was and how this was the first deflationary period since 1950. Funny, I didn’t hear anyone at the gas station or the … [Read more...]
Deflationary Forces Hit the Movies
Deflationary Forces- On March 4th 2009 the New York Times ran an article entitled, "Theater Chain Begins Recession Special: $1 Popcorn and Sodas" talking about Carmike Cinemas instituting their own "stimulus plan". In an effort to help flagging weekday sales the theater chain is cutting those outrageous concession stand prices. Normally during tough times people will cut back on discretionary spending perhaps opting for a night at home with Netflix rather than a night out at the theater. And this is what seems to be happening during weekday nights. However, during weekends quite the opposite is happening. It seems that receipts on weekends are actually up 17% so far in 2009 over … [Read more...]
Deflation and Depression through the Years
By Tim McMahon, Editor Deflation has cropped up at various times throughout the nineteenth and twentieth centuries. Overall since 1913 when the Bureau of Labor Statistics began tracking inflation we have had 22 years that had one or more months when the annual inflation rate was negative (i.e. deflation). Most of those are clumped into larger deflationary periods. The six major deflationary periods are: January 1921 - February 1923 26 months July 1924 - November 1924 5 months July 1926 - November 1933 7 ½ years (with only 5 positive months and 5 zero inflation months.) March 1938 - January 1940 18 months May 1949 - June 1950 … [Read more...]
What is so bad about Trade Protectionism?
By Tim McMahon "As the bill moved through Congress, formal protests from foreign countries flooded into Washington, eventually adding up to 200 pages. Both houses voted aye nonetheless. While the legislation sat on the President's desk, 1,028 American economists called for a veto. Herbert Hoover made it the law of the land anyway, swallowing his own reservations and, on June 17, signing the Tariff Act of 1930".-- Time Magazine You may have heard of Smoot-Hawley and not have a clue what language they are speaking. According to Wikipedia, The Smoot-Hawley Tariff Act was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels. … [Read more...]
Zimbabwe-hyperinflation-and-the-u-s-dollar (moved)
This page has moved if you are not redirected please click here: http://inflationdata.com/articles/2009/02/26/zimbabwe-hyperinflation-us-dollar/ … [Read more...]
What is so bad about Deflation?
By Tim McMahon The average annual inflation rate dropped again this month. At a monthly rate of -1.01% October's drop was touted as "the largest monthly drop on a seasonally adjusted basis since 1947 when the Bureau of Labor Statistics first started tracking seasonal adjustments" and it brought the annual inflation rate off its highs and down to a more reasonable 3.66%. November's monthly rate was almost twice as large at but it was hardly mentioned in the news. This month the annual inflation rate has dropped down virtually zero-- 0.09% with a monthly drop slightly larger than the one two months ago. Just a few months ago the annual inflation rate was 5.6% and now it is … [Read more...]
Deflation or Hyperinflation?
By Tim McMahon, Editor The monthly inflation rate dropped like a rock for the second month in a row. Journalists touted last month's drop as "the largest monthly drop on a seasonally adjusted basis since 1947 when the Bureau of Labor Statistics first started tracking seasonal adjustments". What are they going to say this month when it is almost twice as large? Largest drop since last month? This is real live deflation on a monthly basis (although not on an annual basis... yet). Basically, deflation is falling prices (or more accurately a decrease in the money supply that results in falling prices) while disinflation is a slowing of the rate of increase in prices. Are we in a … [Read more...]
Stagflation – What is it?
What is Stagflation? The simple definition of Stagflation is a "stagnant economy coupled with price inflation". Thus the term Stagflation... it has nothing to do with Deer. In other words, in stagflation prices are going up while the economy is going down. The word was coined during the inflationary period of the 1970's. Under normal conditions one would expect inflation to heat up the economy i.e. increase buying demand. That is one reason the FED generally increases interest rates during periods of higher inflation. This helps to cool the economy and prevent inflation from spiraling out of control. Of course ,if you have read other articles on this site, you will know that … [Read more...]
