Deflation hits the USA


US consumer prices fell for the first time since 1955 last month. Deflation was more common before 1955, and in the 1929-33 period prices fell by c10% a year.

The danger of deflation is that it changes the entire psychology of purchasing. With inflation, it is better to buy today, because the product/service will be more expensive tomorrow. But with deflation, one can postpone the purchase as it will become cheaper with time. Thus demand slows, and profits come under major pressure.

Today’s news provides further support for the blog’s October suggestion that “Prudent CEOs and CFOs will need to develop contingency plans for this depressing prospect”.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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