Could We Experience Deflation?

On today show, we are looking again at the macro environment. So much of what is happening in the world of real estate is being dominated by the macro environment, which is why we keep coming back that. It’s specifically on today show we are looking at a definition for inflation, in order to understand deflation. There is a case to be made for deflation. Today’s show is the first of a two part series on deflation.

Now I know what you’re thinking. How can we be experiencing deflation when all of the statistics are pointing to inflation. In fact the Federal Reserve and central banks around the world have been raising interest rates in order to fight inflation.

You’re wondering - Has Victor totally lost his mind?

We have become accustomed to thinking of inflation, as meeting the consumer price index. The Bureau of labour in statistics has several metrics for price indices. There is the consumer price index which includes the more volatile food and fuel components. Then there is core, CPI, which excludes These more volatile components. However, in almost every case throughout history, it can be shown that these measures are not the inflation per se, but rather the symptom of inflation.

The actual inflation is the inflation of the money supply. When you have more currency bidding for a fixed amount of goods and services in an economy, that excess money will eventually bid up the price of those goods and services.

So that’s inflation. But what about deflation? If consumer price inflation is the result of inflation of the money supply, then would it make sense that consumer price deflation would be the result of a decrease in the money supply?

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Host: Victor Menasce

email: [email protected]