Industrial Insight

Deflation? when oil goes from 40 to 140 then falls to 80, the drop from 80 to 79 is deflation?? | August 11, 2010

Economy Will Likely Recover With Inflation, Not Deflation, to Follow

By Jeff Saut Aug 09, 2010 10:30 am

Since June 1981, when Volker started to lower interest rates from 20% as high inflation rates started to fall, the absolute level of CPI rose 142% to the high in July ’08 (90.5 to 217). Deflation is defined as a decrease in the general price level of goods and services; but, to quantify the current fall in prices, the CPI has fallen just 1% from its all-time high. This tiny price move, notwithstanding we are still near an all-time high in the daily cost of living, has led to talk that the Fed needs to do more to avoid deflation at all costs and thus create inflation via more QE (quantitative easing ). An example, oil goes from $50 to $85 in one year and the next year falls 1% to $84.15 and we’re told there is deflation and deflation is bad.


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About author

I'm the executive vice president for a steel casting trade association, the Steel Founders' Society of America. I've got a crazy wife, five crazy children, three crazy people that married into the family, and two crazy fun little grandsons.







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