Courtesy of Mish.
If you repeat something completely inane enough times, do people, even economic writers, believe it?
To understand the context of my question, please consider the Bloomberg article Price Slowdown for Cars, Baby Clothes Raises Fed Concerns by Michelle Jamrisko and Ilan Kolet.
Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve’s drive to guide the economy away from the precipice of deflation.
The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg.
The slowdown has been broad-based, with durable goods such as autos, nondurables like clothing and services including health care all playing a role. Fed policy makers are on guard to keep such disinflation from morphing into outright deflation, a persistent drop in prices that prompts households to delay purchases in anticipation of even lower costs and leads companies to postpone investment and hiring.
Emphasis in red is mine.
Deflation Definition
In the following discussion, except where prefixed, the term “deflation” means a drop in consumer prices (even though that is a miserable definition).
I use that definition for point-of-discussion purposes only, simply to show the ridiculous nature of widely held beliefs.
Deflation Theory
“A persistent drop in prices prompts households to delay purchases in anticipation of even lower costs” say the authors of the above article.
I have heard that theory expressed hundreds, if not thousands of times. I suggest a reality check.
Reality Check Questions…
