Deflation Is Coming, and It Doesn't Have to Be Bad

Read this on Bloomberg.com


By Chris Farrell December 19, 2013

A specter from the past hovers over the major industrialized nations: deflation. A decrease in the overall price level, deflation was a term relegated to economic history, with the notable exception of Japan following the bursting of its land and stock market bubble in the late 1980s. The everyday experience of the post-World War II generations has been inflation or rising prices. Besides a few exceptions, such as New York Times columnist and Nobel laureate Paul Krugman, many economists, central bankers, and Wall Street strategists primarily fret over prospects for inflation. Sure, prices may be tame at the moment, but inflation’s resurgence is inevitable—or so we’re repeatedly told.
Really?

The trend in consumer price indices clearly point toward increasing deflationary pressures. The epicenter of current concern is Europe, with its latest consumer price index reading at 0.7 percent, down from 1.1 percent a month earlier. Spain’s year-over-year inflation rate is at 0.1 percent. Germany sports a mere 1.2 percent annual inflation rate, and a number of smaller, troubled countries are in deflation, such as Greece, Latvia, and Bulgaria. A parallel story unfolds in the U.S. America’s CPI is running at a 0.9 percent year-over-year pace, down from 2.2 percent a year ago.

Here’s the thing: Deflation has become the modern condition. The emergence of deflation isn’t a temporary phenomenon reflecting the economic weakness and high unemployment. No, the underlying trend toward deflation stems from heightened international competition for markets (globalization), widespread migration (immigration), and rapid technological advances (Amazon.com (AMZN)). The Great Recession and the anemic recovery simply accelerated the trend from disinflation and toward deflation.

Being that our classhas talked and done a few presentations regarding economic policy and inflation, I personally find this article as non alarming, and that the invisible hand to correct markets is normal and things go up and down in cycles.  Just like global warming.  If you really want to play games about inflation, than jump into bitcoin.  Inflation and deflation are common things and trends I think especially when it comes to the stock market.  Many times there are stocks whose value skyrocket and then plummet over the course of a long or very short period of time.  This is kind of like global warming in a way too, there is an upward trend  of rising temperatures now but then they will be in a decline.