Tuesday, January 12, 2010
I still see plenty of people worrying about deflation, but they need to look at charts like this and chill. Deflation is when all prices fall. When housing prices fall and rents fall and stores offer incredible bargains, that is not deflation; it's a change in relative prices. Firms that suddenly find that demand for their goods and services has collapsed must lower their prices if they are to stay in business. Meanwhile, the prices of virtually all commodities are going up. These two charts are just a sampling of what I could show, but both of these happen to show prices up over 100% from the lows of late 2008 and early 2009. You might say that lower housing prices are freeing up money that is instead being spent on higher energy costs.
Posted by Scott Grannis at 10:51 AM