[PEN-L:29419] RE: deflation

["Devine, James" <jdevine@xxxxxxx>]

Title: RE: deflation

yeah, I know that. In fact, falling producer prices are a sign that consumer prices are likely to fall in the future.

A true deflation is like a pure inflation: it has to persist for awhile. It's only when retail & wholesale prices -- and money wages -- have been falling for a few months to a year that the economy screams as real debt loads rise relative to incomes. Of course, an asset deflation (such as what hit the stock market and could hit the housing market soon) can have the same effect on the economy, since it would cause people's balance sheets to go to hell (or deeper in that direction).

Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine

> -----Original Message-----
> From: Doug Henwood [mailto:dhenwood@xxxxxxxxx]
> Sent: Tuesday, August 13, 2002 3:45 PM
> To: pen-l@xxxxxxxxxxxxxxxxxxx
> Subject: [PEN-L:29417] Re: RE: Re: Re: deflation
>
>
> Devine, James wrote:
>
> >it's not true deflation unless prices _in general_ are falling,
> >though the fall in prices in crucial sectors can indicate that true
> >deflation is in the offing.
>
> Consumer prices aren't falling, but producer prices are. Year-to-year
> change in US PPI, all and excluding food and energy (core):
>
>            all     core
> 12/01    -1.7     0.9
> 1/02     -2.8     0.3
> 2/02     -2.7     0.7
> 3/02     -1.7     0.5
> 4/02     -2.0     0.3
> 5/02     -2.7     0.1
> 6/02     -2.0     0.3
> 7/02     -1.1    -0.2
>
> Clearly, weaker energy prices are pulling down the overall index, but
> the core numbers are very low (annual changes well under 1%) - and
> most recently negative.
>
> CPI comes out in a few days, but it's very low too - .1 for the
> latest month and 1.1 for the year in June.
>
> Doug
>