The Threat of Deflation Still Looms Over the Economy
Published in Le Journal des Finances
(France) on 16 December 2008
by Le Journal des Finances (link to
original)
New construction projects are at their lowest level in the United States since 1984.
The economy is at its lowest inflation rate since 1932.
The threat of deflation is, more than ever, clear and present in trading rooms and economic research institutes. Even today, two figures point to a degradation of the economic situation across the Atlantic. The first, that of new construction projects, reveals a new aggravation of the crisis in the United States' real-estate sector; indeed, they have fallen by 18.9% as compared to October, amounting to a total of 625,000 in adjusted data at an annual rate.
It's the lowest level attained by this figure since 1959, and the creation of the index by the Commerce Department.
The second figure which gives evidence of the gravity of the situation of the world's first economic power is inflation without a doubt. It has continued its slow decrease, following a drop in the price index of 1.7% in November as compared to October. At an annual rate, prices continue to progress, but slowly at 1.1%.
A Deflationary Scenario
A year ago, this news would have delighted industrials and consumers, who were complaining about the increase of raw material and the labels constant change. Today, however, this decrease means bad news because this drop of the upwards pressure on prices is symptomatic of an anemic demand and a dying consumption, pushing businesses to decrease their selling prices.
The economists’ biggest fear is indeed that the spiral of deflation is coming, that which joins deflation and a decrease in activity and production. With the figure of new building projects and that of manufacturer ISM at the beginning of the month, everything leads to the conclusion that this scenario is plausible. One particular factor could nevertheless carry hope. Mostly, the announced deflation plays a big part in the drop in energy prices, a factor which could be able to boost American purchasing power.
The economy is at its lowest inflation rate since 1932.
The threat of deflation is, more than ever, clear and present in trading rooms and economic research institutes. Even today, two figures point to a degradation of the economic situation across the Atlantic. The first, that of new construction projects, reveals a new aggravation of the crisis in the United States' real-estate sector; indeed, they have fallen by 18.9% as compared to October, amounting to a total of 625,000 in adjusted data at an annual rate.
It's the lowest level attained by this figure since 1959, and the creation of the index by the Commerce Department.
The second figure which gives evidence of the gravity of the situation of the world's first economic power is inflation without a doubt. It has continued its slow decrease, following a drop in the price index of 1.7% in November as compared to October. At an annual rate, prices continue to progress, but slowly at 1.1%.
A Deflationary Scenario
A year ago, this news would have delighted industrials and consumers, who were complaining about the increase of raw material and the labels constant change. Today, however, this decrease means bad news because this drop of the upwards pressure on prices is symptomatic of an anemic demand and a dying consumption, pushing businesses to decrease their selling prices.
The economists’ biggest fear is indeed that the spiral of deflation is coming, that which joins deflation and a decrease in activity and production. With the figure of new building projects and that of manufacturer ISM at the beginning of the month, everything leads to the conclusion that this scenario is plausible. One particular factor could nevertheless carry hope. Mostly, the announced deflation plays a big part in the drop in energy prices, a factor which could be able to boost American purchasing power.
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