English Lessons for WSJ: "Deflation" Means Falling Prices

CEPR - Center for Economic and Policy Research

Publications
Op-Eds & Columns Data Bytes Blogs Graphic Economics Briefings/Testimony Scorecard Series Books Films En Español Other Languages

Multimedia

Home

Publications

Blogs

Beat the Press

English Lessons for WSJ: "Deflation" Means Falling Prices

Sunday, 29 January 2012 21:55

It's unfortunate that people who actually do business deals might think that they are getting information from the Wall Street Journal. It had an article warning readers that:

"demand for loans hints at deflation."

There was actually not a single item in the article that suggested in any way whatsoever that prices would be falling. The piece did present some evidence of weakening loan demand, which would imply slower economic growth, but there was zero, nada, nothing to suggest that prices were about to start falling.

It is also worth noting that small rates of deflation are of no particular consequence. It would be better for the economy to have a higher rate of inflation right now in order to reduce the real interest rate and household debt burdens. However a decline in the inflation rate from 0.5 percent to -0.5 percent is of no more consequence than a decline from 1.5 percent to 0.5 percent.

WSJ reporters should know this.

Comments (2) Add Comment

Subscribe to this comment's feed

Show/hide comments

Higher inflation is not good for everyone
written by Bill H, January 29, 2012 11:50 PM

"It would be better for the economy to have a higher rate of inflation right now in order to reduce the real interest rate and household debt burdens."

It would also diminish the value of household savings, drive down the effective income of retired seniors, and punish anyone who hass not accumulated debt.

...
written by skeptonomist, January 30, 2012 8:41 AM

If the WSJ wanted to make a case for deflation, they could have quoted Krugman, who for a while continually predicted damaging deflation (he has eased off since it did not materialize). This prediction was apparently based on a theory of some sort, not any kind of data. Actual expectation of inflation as measured by the University of Michigan poll as well as spreads on TIPS has been consistently positive and moderate, except when oil price crashed in 2008 and inflation itself temporarily went negative.

-2

Write comment

(Only one link allowed per comment)

Show/hide comment form

This content has been locked. You can no longer post any comments.

About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

Archives