LOL -- you cite Argentina, where inflation peaked at over 5,000% per year, etc, etc, as examples of deflation? Are you kidding or did we get our wires crossed?
<<The following excerpts are from an article by Domingo Cavallo entitled "Lessons from the Stabilization Process in Argentina, 1990-1996," published by the Federal Reserve Bank of Kansas City in the proceedings from its 1996 symposium Achieving Price Stability.
Hyperinflation exploded in 1989. It was the final stage of a chronic inflationary process that began in 1945 and lasted forty-five years. From the beginning of the century until the end of World War II, Argentina had been characterized by stable prices. Internal prices only reflected fluctuations related to events in the world economy, such as the two world wars and the Great Depression of the 1930s.
After 1945, the combination of industrial protectionism, redistribution of income based on increased wages, and growing state intervention in the economy touched off the inflationary process shown in Table 1. After so many years of inflation, there is a general consensus among economists about the mechanics of this process. A persistent fiscal deficit, increasingly financed by monetary emission, caused more and more frequent devaluations of the local currency. The acceleration of inflation resulted from the demonetization of the economy as the public tried to avoid the inflation tax.
During the last decade of this period of chronic and growing inflation, the social and economic costs of inflation became evident. In the 1980s, the economy, increasingly disoriented by inflation, declined at a rate of 1 percent per year. Employment continued to grow 1.6 percent per year but the 2.6 percent average annual decline in the productivity of the employed was the clearest evidence that only unproductive activities were expanding. This was especially the case of the public sector but it also existed in the private sector,which continued to be strongly protected from foreign competition and involved in financial speculation. Government expenditure during the 1980s represented, on average, 33 percent of GDP, while the fiscal deficit was about 5 percent of GDP. . . .
The year 1989 was catastrophic. Government expenditure reached 35.6 percent of GDP and the fiscal deficit climbed to 7.6 percent of GDP. From December to December, inflation almost reached 5,000 percent; at the peak of March 1989 to March 1990, it was over 20,000 percent. Gross domestic product fell more than 6 percent and imports fell 21 percent that year. The government could not ignore the strong public demand for the price stability that had been absent for forty-five years.
Table 1
Argentine Inflation by Decade
(Annual rates of change in the consumer price index)
Period
Average Maximum Minimum
1920-1929
-1.7 17.1 -15.9
1930-1939
-0.3 13.0 -13.9
1940-1949
10.6 31.1 -0.3
1950-1959
30.3 111.6 3.7
1960-1969
23.3 31.9 7.6
1970-1979
132.9 444.0 13.6
1980-1989
750.4 4,923.3 87.6
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