Negative Inflation

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Inflation – Deflation 

Inflation is a term which tends to reduce the real value of money over time and deflation increases the real value of money, the currency of a regional or national economy, enabling an individual to purchase more products with the same amount of money overtime. In other words deflation is a situation when the price level decreases and the inflation rate tends to get negative.

Economist are of the opinion that deflation could be a problem in a modern economy since it increases the real value of debt and affects recessions, leading to a deflationary spiral. All episodes of deflations do not correspond with phases of poor economic growth. During the 19th century, deflation took place periodically in the U.S. and this deflation was the result of technological progress creating significant economic growth while at other times was due to financial crises particularly the Panic of 1837 that caused deflation during1844 as well as the Panic of 1873 triggering the Long Depression which lasted till 1879.

These periods of deflation were prior to the establishment of the U.S. Federal Reserve System and the active management of monetary issues. Deflation episodes were rare and brief with the development of Federal Reserve while American economic progress has been unprecedented

Negative Inflation 

Negative inflation is said to be an economic phenomenon wherein the economy tends to move out of an inflationary phase and enters into a phase where there is less money in circulation. Negative inflation tends to occur when the prices fall due to the supply of goods which is higher than the demand for those products.

It is often due to reduction in money, consumer or credit spending and could be the result of a combination of various factors which may include, having excess money in circulation that may decrease the value of money which in turn would reduce prices, with more products manufactured than the demand for the same.

 This could lead to businesses decreasing their prices in order to urge consumers to purchase those products and not having sufficient money in circulation causes those with money to hold on to it instead of spending it and decreased demand for goods decreases spending.

Though it would seem that lower prices are good, deflation could ripple through the economy for instance when it creates high level of unemployment, turning into a bad situation and this type of a recession could turn into a worse situation like a depression.

Leads to Unemployment => Decrease in Spending => Less Demand

Deflation could lead to unemployment since the companies tend to make less money and react on cutting costs to survive which may include in closing of the stores, plants and warehouses and laying-off their workers.

This results in the worker having to decrease on their spending leading to less demand with more deflation causing a deflation spiral which may be difficult to break. Deflation tends to work without affecting the rest of the economy when businesses are capable of cutting the costs of production for the purpose of lowering prices like in the case of technology, since the cost of technology products has reduced over the years though it was due to the cost of producing technology that had decreased and not due to decreased demand.

Google Declares ‘Inflation’ As the Least Searched Topic

The cost of living is increasing day by day due to the rise in the prices of essential commodities throughout the countries. As per the Google analysis of the search trends the term ‘inflation’ comes out a biggest buzzword from the Indian searches. The term inflation has seen a tremendous search interest in past few years but now this has completely died down with such a decline that it is now being declared as the least searched topic on the search engine this year.

This is credited to the rate cuts in the crude oil prices along with new productive reforms initiated by the government. However bad weather coupled with unexpected rain and dense fog and triggered a sudden rise in the wholesale prices of the vegetables.

Inflation Term Showed A Peak In Search in 2013

The searches for the world ‘inflation’ on the Google’s search engine peaked around mid-August to end-October in 2013. But this very trend shows a mightier dip in interest for the same time period in 2014. The successful general elections followed with a robust and stable government at the centre has ensured that the interest remains ignited around the market price war. The new government has effectively managed to address the issue of ‘inflation’ in a more dignified and forceful manner than earlier government. This is being reflected in the decline of the searches based on the inflation in the past few months.

Uttar Pradesh Generated Most Search Queries For Inflation

On national scale the term inflation was being searched from all the parts of countries alike but an in-depth analysis of the regional interest rate shows a much clearer picture. Uttar Pradesh generates the most number of search queries related to inflation followed by Maharashtra, Delhi, Karnataka, Andhra Pradesh along with Tamil Nadu and Gujarat.

Year based analysis indicates that 2010 was the year which showed highest search interest in ‘inflation’, a slight dip was seen in 2011. People had taken the help of the search engine giant Google’s network to increase their understanding of the inflation and to keep tab on the various developments related to the grave issue of price rise and inflation.

Repo Rate Was Also Searched Frequently

The subsequent rise and fall in the rate inflation in last few years had also affected the bank interest rates to a great extent. Search queries were also generated around the ‘Repo Rate’ which is set by the Reserve Bank Of India in order to counter the inflation. This also shows that how much impact or concern people felt during that particular time interval with the frequent price rises and inflation.

The inflation was at its peak in 2013 and ‘Repo Rate’ related queries showed a peak in the Google search results in month of September.

The drop in the price of crude oil in international market has resulted in the recent roll-backs on the fuel prices. The searches are being continuously made on the repo rate as people are expecting a cut in it before February 2015.

The Currecny and The Inflation

If the tickets are not hoarded, but used as soon as possible, the rampant inflation is not preprogrammed. This requires, besides the loss of confidence in the state, a simultaneous collapse of production, caused for example by the French occupation of the Ruhr in Weimar Germany, the nationalizations of the early Soviet unbridled or hunting white farmers in Zimbabwe of Mugabe, to name only the most famous examples of hyperinflation.

Such phases have been rather rare, especially given the tremendous growth that the world has known these past hundred years. Is that the introduction of a purely fiduciary currency regime has liberated our economies of these brakes ancestral: the lack of credit and therefore money. Ever it was no more acute than in the standard purest gold, between 1870 and 1910, during which nine successive recessions in the United States, the Bank of England has often had to temporarily lift its cover- Gold, protectionism grew at the same time as the social discontent. Between the rush California and the opening of South African mines, the world sorely missed because of the yellow metal to properly feed its growth potential. So - as some said - that humanity is not crucified on a cross of gold, while central banks have gained powers when they have not simply been created as the U.S. Federal Reserve and the National Bank Switzerland. But the link to gold remained still too strong since it is probably he who explains the magnitude of the Great Depression of the 30s.

Faced with these shortages and crises, and despite all its faults, the monetary regime fiduciary past fifty years seems rather beneficial. Certainly, central banks create money by their own judgments, frightening those who do not understand the value of a currency does not lie in its coverage, but in its ability to purchase. Now this creation is not reckless because the tickets are always accepted with gusto by those who are lucky enough to receive it. For accounting purposes, rather, they seem-backed IOUs, but it might not be the case if they were not put into circulation through banks.

Inflation and US Economy

The Fed has chosen to focus on core inflation (core inflation), which excludes food and energy, ignoring the historically high commodity prices. It kept interest rates low and fueled the subprime bubble that has "poisoned" the financial sector in all developed countries. In contrast, the ECB has chosen to focus on overall inflation, reflecting the influence of emerging markets on rising commodity prices. This resulted in a much more accommodative monetary policy for the Fed, which will be maintained during the decade 2000 - 2010, real interest rates negative to zero half the time, conduct unthinkable in Europe, where the rate interest of the ECB held steady over the decade in a range of 2% to 4.25% and is down below 1% since May 2009.

In short, Europe was characterized by a more responsible economic management and a long term vision that contrasts with the choice of U.S. policies rewarding in the short term but long term suicidal. In doing so, Euroland has been repeatedly sanctioned as less effective by a financial community hungry for "chips" to power the "casino", and anabolic steroids to boost the stock market. United States, this meant a policy of overstimulation leading to the forced expansion of an economy that was completely retract, the time to cleanse themselves and go on a diet. So these last twenty years, Europe has been seen and experienced as rigid and boring by market operators constantly claiming she is aligned with the U.S. monetary policy, "more growth-oriented," and that it manages to stimulate consumer debt, ideal dictated by the U.S. model. "Always behind," Europe is less than the U.S. in times of euphoria, facial expression does one, and falls into a recession more severe in times of crisis, even when these crises have their origin the United States.

And one pretends to ignore that Europe, with less cheating because its economy is suffering as long as she finds herself infected, its territory by U.S. banks toxic. Indeed, the same "solutions doping" that Goldman Sachs sold to Greece have been used in the early 2000s by various regional banks and public entities in Europe, including Italy, Portugal, in the German Länder, and Eastern Europe. But the national authorities and community were not ready to provide remedies as extreme as their American counterparts.

Still bad news for U.S. economy

The U.S. economy suffered further bad news. First, the Commerce Department left unchanged its estimate for growth in the fourth quarter, to 0.6% only. However, analysts expected a 0.8% enhancement.

These figures are 2.2% growth over the whole year, from 2.9% in 2006, which is the lowest rate since 2002. Household consumption fell sharply in the last quarter (+1.9% instead of 2% estimated earlier, and after 2.8% in the third quarter) and investment in the stone has indeed fallen by 25, 2% (instead of -23.9%), the largest decline recorded since 1981. Business investment grew by only 6.9% (instead of 7.5%).

Inflation is well above normal

The index measuring prices related to consumption expenditures (PCE) increased 4.1% (instead of 3.9%), and the PCE core index (excluding food and energy) increased 2.7 %, as in the first estimate. Now the Fed wants to keep it normally from 1% to 2%.
Finally, the weekly claims for unemployment benefits rose 19,000 to 373,000 in the United States during the week ended Feb. 23. Analysts had forecast 350,000 jobless.

Evils of Inflation and deflation

Let me explain the concept of Inflation and deflation in a simple manner. Inflation and deflation are the terms used to describe the state of a Economy.

Inflation is the word used during price rise of essential commodities. Inflation is nothing but, too much of money chasing too little goods. To put it simply, if there is too much of paper money and less quantity of goods are produced, then too much of paper money would chase too little goods which would automatically increase the price of the commodity.

Inflation occurs when there is more paper money and less end products. There is imbalance between the money printed and the goods produced during inflation. Inflation can be controlled by controlling the printed paper money or producing more of the goods.

The term deflation is used opposite to Inflation. Deflation is a period when too little money chases too many goods. Because of this, the price of the commodities starts falling which will put the producers to get a price lower than their production cost. This is also evil to the economy.

So continous fall or rise of prices would be seen as evil for the economy. Inflation and deflation can be controlled by the Government by increasing or decreasing the Interest rates or by controlling the printing of Currencies.