World faces low inflation threat not seen since before WWII

jackalope

Former Staff
Jan 2010
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17,672
Maine
#1
World faces low inflation threat not seen since before WWII

Analysts predict inflation will fall below 2pc in all of the countries that make up the G7 group of advanced nations this year



If inflation falls as low across the G7 as economists expect it to, this year will bring one of the worst disinflationary episodes
since 1932
Photo: John Minchillo/AP


By Peter Spence, Economics Correspondent

3:54PM GMT 05 Jan 2015

Increases in the prices of goods and services in the world’s largest economies are slowing dramatically. Analysts are predicting that inflation will fall below 2pc in all of the countries that make up the G7 group of advanced nations this year – the first time that has happened since before the Second World War.

Indeed, Japan was the only G7 country whose inflation rate was above 2pc last year. And economists believe that was because its government increased sales tax which had the effect of artificially boosting prices.

But falling prices mean things are getting cheaper (or, at least, are not getting too expensive too quickly). Surely that is a good thing?

Not necessarily. The key ambition of any government is to achieve price stability. That is why the central banks of all G7 countries - Canada, France, Germany, Italy, Japan, the UK and the US - target an inflation rate of close to 2pc. This gives businesses and consumers the certainty they need to plan for the future. But with price growth slowing, many economists are worried that some of the world’s biggest economies could slip into outright deflation.

Whether or not this is a problem depends on the particular type of deflation that is occurring.

(snip ... )


But “the arrival of exceptionally low global inflation pre-dated the collapse in commodity prices”, Mr King added. “Long before there was any hint of lower commodity prices, inflation was already surprising on the downside."

This strongly suggests that the world economy is at risk from the most dangerous kind of deflation. The worry is that this will lead to a dangerous downward spiral in which consumers hold off spending as they wait for prices to fall further. The reduction in demand for goods and services would then become self-fulfilling. Companies may start reducing their capital expenditure as they try and ride out the slump in demand. This would further depress economic growth.


Some economists are worried that the world’s largest economies are on the brink of just such a spiral.

more: World faces low inflation threat not seen since before WWII - Telegraph


Since 1932 -- I wonder why they characterize that as since before WWII, instead of since the Great Depression? If the world falls into a deflationary cycle, The Great Depression is what is relevant, not WWII.
 
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Jul 2013
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Nashville, TN
#2
With world poverty at an all time high, demand is falling behind supply, thus no inflation to speak of, stuff will get really cheap when the worlds one percent get to 90 percent of the worlds wealth.
 
Likes: 4 people

jackalope

Former Staff
Jan 2010
51,139
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Maine
#3
With world poverty at an all time high, demand is falling behind supply, thus no inflation to speak of, stuff will get really cheap when the worlds one percent get to 90 percent of the worlds wealth.
Anyone who's read any history knows you're correct.
 
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Jan 2015
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United States
#4
This strongly suggests that the world economy is at risk from the most dangerous kind of deflation. The worry is that this will lead to a dangerous downward spiral in which consumers hold off spending as they wait for prices to fall further. The reduction in demand for goods and services would then become self-fulfilling. Companies may start reducing their capital expenditure as they try and ride out the slump in demand. This would further depress economic growth.
I think that applies to wages as well. That would suck. Tax and personal revenue would decline while the personal and national debts would have to be paid off at the same old amounts and rates. We're really not going to like that... it'll cream the global economy utterly, I can imagine.
 
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Sep 2014
5,063
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South FL
#7
Please, perhaps you'd like to pay more for gas? Fuel is a major factor of, not deflation, but low inflation. When things cost LESS the one thing people forget is that they continue to have the savings to spend on other things. Low inflation also sends a signal to the Fed that rates don't need to rise. To the extent low inflation is indicative of economic weakness, it's a symptom, not a cause.
 
Last edited:
Apr 2011
4,957
4,078
Pittsburgh, PA
#10
Today though, the statistics are showing relative price stability.
I'm not talking about economics, that's just one piece of the puzzle.

As stable as we are, there is so much tension across the globe, we're about to come to a head.

We're either going to make it past this point, or we're going to die.
 
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