Remember when deflation was all the rage? No? Well, you must not be a bona fide econo-nerd. Or someone who makes a living selling electronics.
In any event, there was a time – the early part of this century – when interest rates were low and mortgages were increasingly easy to come by and the price of many things was either flat or falling and economists worried.
Okay, they always worry. But what they worried about was a problem they hadn’t seen for a long time, an economic ill that might defy any kind of response: Deflation.
Inflation — that is, rising prices — can be met with higher interest rates from the Federal Reserve. But to fight deflation, the Fed would need to cut rates and rates are already very low — effectively negative in many cases.
The Fed can’t cut them below zero. (Well, they could, but they won’t. Story for another day.)
Most of us normal people think of falling prices as a good thing. But that’s because we think of ourselves as buyers.
But in our system, it’s investing and spending that get things moving, that create productive capacity and that spur still more spending
But when there’s a widespread fall in prices, then your money will buy more tomorrow. So there’s little incentive to buy or invest in anything today. The government could pump money into the economy, but given our current political situation and our worry about deficits, that’s pretty unlikely.
Economic historians look back at the early years of the Depression, when deflation was a reality and the economy was crashing and they tremble.
So, when Adobe's latest digital report came out, eyebrows went up.
It's only a month,; but it's a pretty detailed snapshot. The company tracks billions of transactions online, including more than 2.2 million different products. They concluded that there is deflation in the economy. Among their findings, prices of:
— Medical equipment and supplies dropped 0.6 percent in the past year.
— Groceries fell 0.6 percent in the past month.
— Electronics fell 10.5 percent in the past year.
Some prices rose. Among the prices going up were those of over-the-counter drugs, rising 0.3 percent. Most of the increase was in lower-priced medicines, Adobe said. But also hotels and airline flights rose.
And clearly, some prices are going up. (Rented a townhouse lately? Priced a home in Buckhead lately?). And really, you might only care about what you buy or sell. And for that personalized inflation-deflation reading, the Atlanta Fed has you covered. Click here to take a test spin in your very own economic indicator.
And, for what it's worth, there is a monthly inflation measure from the government, as well as a median inflation reading from the Cleveland Fed. It shows inflation at about 2 percent.
A few years back, the prices of things on the Net might have been a curiosity. Now, perhaps it is a signal for where the economy is heading. Or a cause.
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