Deflation Fears Likely Overdone

In the January 11, 2015 issue of the Los Angeles Times, Tom Petruno examines Wall Street’s latest “Worry Du Jour”, Deflation and provides ample evidence that deflationary fears are likely overdone. Although it is true that energy prices have recently fallen dramatically, healthcare and food costs have not followed.  Also, lower energy prices are usually a boon for consumer spending, a driver of inflation.  Europe’s anemic growth, spreading globally is the evidence most often cited in talks of global deflation.  But even here, many believe this is a stretch including European Central Bank President Mario Draghi who stated that deflation, “cannot be ruled out completely.” although he said the risk was “limited”.  The US economy is also very strong at the moment and many economist believe its strong enough to slow deflationary pressure in Europe.  As UCLA economist Lee Ohanian states “I think we’re more likely to prop them up at some level than they are to drag us down.” To view the complete LA Times article please CLICK HERE.

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