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Non-Tech : Deflation -- Ignore unavailable to you. Want to Upgrade?

To: Jon Koplik who wrote (112)	8/11/2002 11:37:37 PM
From: Snowshoe	Read Replies (2) \| Respond to of 621

There is widespread denial about the possibility of deflation. And yet... A Whiff of Deflation By Hugh Whelan Special to TheStreet.com 08/11/2002 01:15 PM EDT The Producer Price Index declined in July, surprising economists who had expected a modest increase. The weakness in producer prices is not new, though. The PPI has been declining on a year-over-year basis since last September. And weakness in prices has not been confined to wholesale prices either: The CPI, while not declining, has decelerated sharply. The most recent year-over-year increase in consumer prices was a mere 1.1%. These levels are very unusual -- you have to go back to the 1960s to find comparable inflation rates. Arguably, U.S. consumers are not used to operating in a world of declining prices. It seems quite plausible that current consumption levels are being artificially stimulated because consumers are snapping up goods that they perceive to be offered at "low" prices. In other words, consumers believe they should buy now before prices go back up to their "normal" levels. If deflation is truly upon us, however, such consumer behavior will not continue. Quite to the contrary, if prices continue to fall, consumers may begin delaying purchases in anticipation of still lower prices in the future. ... If the long-term causes of deflation are structural, history suggests that the Federal Reserve may not be able to "fix" the problem. They can avoid making transition to the new regime more painful than need be by implementing monetary policy that is consistent with the current environment. But if aggregate demand is truly decelerating, simply printing more money will not change that. Thus, the stock market's celebration of a new rate cut may be ill considered. Subscription required for complete article... thestreet.com