Additional References
EWFF, April 2005
THE ECONOMY & DEFLATION
According to Proquest’s database of six major U.S. newspapers, the number of stories in March that covered deflation declined to 2, compared to 139 inflation articles. Deflation’s 0.7% share of the coverage is minuscule compared to its peak share of over 40% back in May 2003, when the Fed noticed deflation’s burgeoning presence and made it a major media preoccupation. Notice [in the chart in the commentary section], however, that even at its height, deflation’s press coverage never reached 50%, an equal share relative to inflation. The bar chart shows how deflation’s media profile has declined to a level that is almost nonexistent in recent months. The 0.7% share is the lowest of recent times. In fact, even as powerful deflationary forces have gathered in recent months (see this section in the March 2005 EWFF), a major inflation scare is playing out in the papers. The latest issue of Time magazine asks, “Is Inflation Back?” “Inflation fears are mounting across the globe,” says Monday’s issue of The Wall Street Journal. The Fed also fears inflation now.
Because deflation is a monetary phenomenon rather than a freely-traded market, it won’t progress in a strict contrary fashion. At some point, it will become a self-reinforcing psychology that intensifies as consumers, lenders and borrowers respond to dwindling demand and expectations of lower prices by cutting back. In its initial phases, however, deflation tends to wax and wane as fears about its potential do the opposite, as happened back in 2002 and 2003. As deflation worked its way into the headlines for the first time in the lives of many consumers, the deflationary pressure, as measured by rising CRB, CPI, PPI and GDP levels, was actually receding. Now, the situation is reversed. With deflation’s profile about as low as it can go, it is prime time for a full-scale version to take hold. |
