Currently in some Asian countries food prices have gone up, while luxury items have dropped. Is this seen as inflationary or deflationary?
In my experience, (limited to Latin America, in this instance), living under and through a number of devaluations, these events trigger incredible inflationary periods, particularly because everyone is attempting to "maintain" their prior standards. The new measuring standard becomes (for most countries), the US Dollar. Everyone attempts to "match" prior levels in a relatively short period of time, except when price controls are imposed, in which case most of these controls are limited to food staples, (many of them under government subsidies).
All these efforts both of increased prices and government controls, sooner or later, give in to "whatever the market will (and manages to), bear.
In general, again it is inflation. It takes a while, but eventually the cycle repeats again, and a new series of devaluations set in.
Again I will use the example of our beloved Super-Charros in Mexico.
As a result of the 1994 Devaluation, (at the time the exchange rate was about MEP$3.30 to US$1.00), it went to about MEP$5.00/US$1.00.
Since then in fits and struggles it has gone to MEP$9.20/$1.00.
Has anything changed ?..... May be the weather.
Luxury goods, which for the most part are imported (as Henry correctly points out), are either completely priced out of the market, or importation of the same is curtailed, in many instances by government mandate, or existing inventories, are liquidated just to get out of the business all together.
As for Real Estate, in many instances real estate begins to be quoted in US Dollars, (including leases), or pegged to the value of the USD.
So if the USD continues its rise, there are "escalator" rates pegged to such increment, it becomes the "de-facto" applied CPI.
Depending on the item, and on the socio-economic level in question, at first, said luxury goods do suffer an initial "obligatory rejection"...
However in time, slowly as people adjust, those capable of buying imported goods manage to do so.... at ever higher (local) prices, soon they forget how expensive they were, and they begin to buy with abandon, again.
As more devaluations have taken place, the time for recovery has gotten longer, but history shows that they always come back.
In reference to real estate, in former times when less debt was used, real estate owners did not "rushed to sell" creating an excess of supply for RE, on the contrary real estate was considered as the greatest place to invest as it always went up (relative to the local currency).
Lately however, as the use of debt has increased (in real estate), and as each individual crisis triggered by devaluations have become more often and deeper, the story has changed....
So in short, although said import goods suffer temporarily, these devaluations trigger phenomenal periods of local inflation, the standard more than ever, becomes the US Dollar. Whatever, "deflation" in the luxury goods sector, is quickly erased.
Now, see my next post for the next monster-in-brewing south of the border. |
