Holiday discounting helped keep inflation at bay in December, but fresh data on the state of U.S. industry suggest price pressures could yet become an obstacle to recovery.
The Labor Department reported Friday that its index of consumer prices rose a tame 0.1% in December from the previous month, held down by decelerating fuel prices and declines in the prices of items such as toys, televisions and new cars. In a reflection of the depth of the recession and a sharp drop in oil prices, the index average for all of 2009 was 0.4% lower than in 2008.
2 comments:
I have a question that four years of college have yet left unanswered:
Deflation is a bad thing, we are told. But if you take away the unemployed and underemployed whenever deflation occurs, aren't there at least some short-run benefits? Doesn't it increase the value of each person's money, at least in the short run?
Maybe this exposes my fundamental flaw in trying to understand deflation versus inflation, but it seems that there has to be, despite all of the negatives deflation brings with it, at least some positives that we just don't take advantage of.
You are right that it SHOULD have some positive effects. It should clear markets that have excess supply (such as the housing market at the moment). But, why is this then not happening. One of the explanations is that we are rational individuals and if we see deflation, we can expect price to be even lower in the future. Hence, we will not expand our consumption as a response to lower prices. Likewise, firms may see lower labor costs (lower wages), but that is not the only variable in their decision-making. They also look at expected demand for their products and if that outlook does not look good, they may not hire labor even if wages decrease substantially.
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