Credit is being constricted more everyday.This is deflationary as it reduces available money to spend/invest. So does loss of employment. This is causing demand destruction for many things, like RE. Supply and demand forces set market prices. This is why we’re starting to see prices coming down on many things. And as consumer see prices coming down, they tend to wait as time is reducing prices even more. This is considered a deflationary cycle. It takes time to play out as the forces of supply and demand are not always very fluid.
If you look at the last two strongest recessions we’ve had in the last 50 years, prices came down for virtually everything. From 1980 to 1985, the US consumption of oil decreased by ~9%. The price for oil dropped 70%.Gold dropped by 30%. When people stop spending money, the demand is reduced and if the vendor wants to stay in the business, they have to reduce prices to pursuade the buyer to spend. It’s a simple concept and it’s amazing how many things this applies to.
For inflation to increase at this time, we need more money available in the market for people to spend. Or some other part of the world start spending a lot more money. That’s not happening right now. It looks like a global recession is upon us. If a price of something goes up in this market, it is most likely due to demand being stronger than the supply. That’s why the news about OPEC is that they will start cutting supply to hold their prices near $100/bbl. (But I think the only ones who will do it are the Saudi’s)
If the people are too afraid to spend money due to loss of credit and fear of losing their job, the govt will have to step in and take over the job of spending in order to create an inflationary environment. War spending is what got us out of the Great Depression. And I’ll bet we need to see govt spending on a similar scale to get us out of this thing we’re seeing evolve right now.
