Archive for November 19th, 2008
Economists: All Signs Point to Deflation
Wednesday, November 19th, 2008
Consumer prices dropped in October by 1.0 percent – the largest decline ever measured by the Bureau of Labor Statistics, and a sure sign to economists that prices are deflating.
Economists also noted as another indicator yesterday’s recorded 2.8 percent decline in wholesale prices – the biggest decline measured since over the past year.
While consumer prices are still 3.7 percent higher than they were in October 2007, experts still fear that overall business in the nation will suffer, as consumers actively seek lower prices in goods and services. As About.com writer Darrell Zahorsky wrote , deflation is “great news for holiday shoppers … but bad news for business profits in price dropping sectors.”
This year’s shoppers are already accustomed to seeing red-line prices, from even the biggest retailers. Many are waiting till the holidays draw closer for even greater discounts, which could amount to even smaller profit margins for retailers and a spiraling economic downturn.
During a deflation, any inclination toward borrowing and lending also dissipates. Consumers and business may even suffer from debt deflation – when its cost is driven up by falling interest rates and drying-up credit.
“Consumers [sic] recent reluctance to spend and borrow coupled with the banks ever tightening credit regulations are exacerbating the problem,” wrote Zachary Oxman, Wisdom Financial broker, in Seeking Alpha .
A Bloomberg News survey forecasted a 0.8 percent decline in consumer prices. Today, the news source recognizes a push from international leaders for an increase in government spending, as they observe a loss in customer spending power and a global economic downturn.
Meanwhile, The New York Times has observed increasing scrutiny of President-elect Barack Obama and his plans to stimulate the economy. For $5 billion, Obama proposes to expand the Small Business Administration’s Disaster Loan Program, by increasing the guarantee rate of private loans, in addition to temporarily eliminating fees for borrowers and lenders.
Tags: christina lee, consumer price index, producer price index, Seeking Alpha, small business administration
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