PPI Is Lowest on Record

Today’s PPI report shows that wholesale prices have dropped by 6.8% over the last year. That’s the lowest on record.

So is deflation a threat? Matthew Lynn says that fears of deflation are vastly overblown.

In other words, there were plenty of deflationary years. Yet over that period, the U.K. became the greatest economic power in the world: Its relative decline only started once inflation took hold. Deflation didn’t stop the Industrial Revolution, one of the most sustained times of economic creativity ever seen.
Likewise, a 2004 study by the Federal Reserve Bank of Minneapolis looked at the data on deflation across 17 countries over 100 years. It found that although the Great Depression of the 1930s was linked with falling prices, that wasn’t true of any other historical period. There was, it said, “virtually no evidence” that deflation caused a depression.
Why should it? We are constantly told that deflation is bad because it makes consumers hold off from buying things, thinking they will be cheaper tomorrow. But that is just silly.

Posted by Eddy Elfenbein on August 18th, 2009 at 10:35 am

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