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The mid-term trend of inflation is downward (nearly a 5% drop in a year or so).

All inflations usually recede YoY, that's a typical cumulative S-curve - the real problem is that inflation rate (especially "core") is still much higher than what it should have been.

... the premise of the report in the cited article is interesting... that prices have come down more because of supply-side increases than demand-side decreases.

That's not really "interesting" - that's "normal" basic economics : Increasing supply-side usually leads to lower prices for everyone, though may not seem so initially. Decrease in demand-side in and of itself doesn't automatically and necessarily lower the costs and prices if supply-side doesn't catch up - it could even simply reduce the supply side.

Supply-side is dominant force in reducing prices, not exhaustion of the demand. Chasing the demand side by increasing money supply (usually by borrowing) leads to inflation. Fueling the demand-side ("trickle-up") always leads to higher inflation.

People keep worrying about R-word" because "recession" was made by economically illiterate media to have political implications, but inflation has always been a much bigger problem (just ask Argentina, Venezuela and other s**thole LatAm countries) - everyone knows that recession usually leads to "layoffs" and "unemployment" and other "bad political issues and numbers" while real "rolling recessions" (usually through different industries, over a longer period of time, but not meeting "official" definition of recession) during high inflation periods are not necessarily reflected in "official" and often irrelevant numbers.

Recessions come and go, inflations accumulate.
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The mid-term trend of inflation is downward (nearly a 5% drop in a year or so).

All inflations usually recede YoY, that's a typical cumulative S-curve - the real problem is that inflation rate (especially "core") is still much higher than what it should have been.

... the premise of the report in the cited article is interesting... that prices have come down more because of supply-side increases than demand-side decreases.

That's not really "interesting" - that's "normal" basic economics : Increasing supply-side usually leads to lower prices for everyone, though may not seem so initially. Decrease in demand-side in and of itself doesn't automatically and necessarily lower the costs and prices if supply-side doesn't catch up - it could even simply reduce the supply side.

Supply-side is dominant force in reducing prices, not exhaustion of the demand. Chasing the demand side by increasing money supply (usually by borrowing) leads to inflation. Fueling the demand-side ("trickle-up" - whether it's "from the bottom up" or "from the middle out") always leads to higher inflation. Both are Keynesian in nature.

People keep worrying about R-word" because "recession" was made by economically illiterate media to have political implications, but inflation has always been a much bigger problem (just ask Argentina, Venezuela and other s**thole LatAm countries) - everyone knows that recession usually leads to "layoffs" and "unemployment" and other "bad political issues and numbers" while real "rolling recessions" (usually through different industries, over a longer period of time, but not meeting "official" definition of recession) during high inflation periods are not necessarily reflected in "official" and often irrelevant numbers.

Recessions come and go, inflations accumulate.
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#13 | Posted by Claudio at 2023-09-18 10:51 PM
Deflation does not kill demand or no one would buy a computer or flat screen TV. Those have had 20+ year deflation cycles. Look at gas - when prices goes down, demand goes up and the economy booms. Look at any staple food product - literally every one (take milk for example) is cheaper today that it was in 1995 inflation adjusted.

Your use of terminology and/or examples are poorly chosen.

Gas / oil / crude / refined and milk and other 'foods and foodstuff' as well as metals and currencies and many other very volatile economic inputs are what's known as "commodities" which have free-floating prices (and that is why their short- and medium-term "futures" are often traded on commodities exchanges) and can usually be imported and exported freely, with prices reacting to their overall expected availability or need over that future time period.

That's why the terms inflation and deflation are inappropriate and rarely used in relation to single commodities and in fact, many commodity products prices are either uncorrelated to most others or priced directly opposite to certain other commodities - very rarely there is a synchronized price direction or action across all commodities.

Inflation and deflation are terms most appropriate to overall economy of relatively stable-priced over time "capital goods and services (~70% in the US)" or few "capital segments" or "core" of the economy like real-estate, for example.

Core inflation is the change in prices of goods and services, except for those from the food and energy sectors.

Mass-produced technology / electronic products like computers and their parts like processors, memory, storage etc. and TVs / monitors are becoming outdated so quickly that they behave a lot more like commodities with built-in obsolescence and therefore their value is almost constantly declining. That's why technology / automation is used to lower the cost of production and service, whenever and wherever possible, even if the initial cost of deployment may be higher.

In fact, technology and free trade with the countries where input costs of production were initially - at the time and for a time - much cheaper than in the US ("made in..." Japan, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Indonesia, Philippines, Turkey, Mexico, Eastern Europe, China, India, Vietnam...) helped set a very long period of low inflation and/or disinflation in the US. As these countries have gotten richer (more capitalist) and more "expensive," the production and/or services moved to another place.

Why the economic deflation is bad? Because a lot of businesses / producers would stop producing and/or stock up on stuff they would sell at a loss, and the customers would wait to buy stuff they could buy cheaper later, and that would set up "negative feedback loop" and cause self-feeding "deflationary chain reaction" / "deflationary loop/spiral" - that's what happened more recently in the U.S. and most of the world during the Great Depression of late 1920s-1930s and Global Financial Crisis (GFC) of 2008-2010s aka the Great Recession.

Deflation is also harder to protect and fight against - it's been described as "pushing on a string" ... but that's another subject.

These should help :

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#15 | Posted by Claudio at 2023-09-19 06:55 AM

I already explained why the terms "inflation" and "deflation" are not appropriate for single commodities - they may rise and fall several times a year or a month - and their prices over time may be [directly and indirectly] included in prices of more stable "core" economic indicators.

There is a also a reason why, for example, we don't include price of Bitcoin and other alt-currencies in "inflation" yet we adjust economic values for the inflation measured in USDs - some commodities are more important to the economy than others, and comprise a smaller or larger input depending on which "basket of goods" you want to choose.

Just because some commodities we deem more important than others may drop or rise for a while doesn't signify we have overall economic "deflation" or "inflation."

And yes, most economic indicators actually include prices of food and energy, and GDP Price Deflator and both CPI and Fed-preferred CPE, as you know - "core inflation" is separate and less volatile indicator from headline "overall inflation"... so it's a better measure of direction of inflation.

I already explained the built-in deflationary role of technology, and consumer electronics, in particular - in the US alone total electronic manufacturing directly accounts for 0.7% of the jobs and 1.6% of GDP.

"... if that is the case, no one would buy a computer today - or solar panels - or the dozens of other products that people know will offer a higher value in the future if they hold off for a bit."

And they do "hold off" - they buy them when they need them (e.g., old one broke or doesn't run new OS or apps/programs, etc.) or when it makes economic sense, or simply when they have the money and want a new shining thing that's more powerful and "on sale"...

It has absolutely nothing to do with economy-wide "deflationary spiral" that we have experienced... but apparently forgot after a bout of inflation.

Like I said, poor examples.
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