NEW YORK - The sinking global economy is suffering through a colossal disinflationary shock that could briefly push it into dangerous deflation territory for the first time in decades.
While weak or falling prices may seem like an unalloyed good for consumers, a widespread deflationary price decline can be deleterious for the whole economy. Households hold off buying in anticipation of ever lower prices, and companies postpone investments because they see limited profit opportunities.
"It's possible that the response to this over the longer term could have an inflationary consequence," former New York Federal Reserve Bank of New York President Bill Dudley told an April 2 webinar organized by Princeton University."But in the near term, it's very definitely on the disinflationary/deflationary side."
DISINFLATIONARY FORCE "The overwhelming disinflationary force is quite large," Diane Swonk, chief economist at Grant Thornton, told Bloomberg Radio on April 3. And in the US, domestic air fares plunged by an average of 14 per cent between March 4 and March 7, according to booking site Hopper.com. Average revenue per hotel room plummeted 80 per cent during the March 22-28 week from year-ago levels, hospitality-data firm STR reported.
Does the capitalism survive to the earth?
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