3 years, 3 months ago
Will inflation rise in 2009?
The CPI shows inflation at less than 1.5 percent. Yet products and food prices at Cosco have raised by 10 percent. Do you expect rising inflation in 2009?
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M$1 Answer
Right now we run as much risk of deflation as inflation. People are losing their jobs, which means they have to reduce spending, which means there is less demand, which reduces prices, which reduces the need for production, which lays off workers - you get the idea. With credit tight but rates low, housing prices diving, and big-ticket items sitting for months without selling, I'd say inflation overall is less risk at this time than deflation.
Prices at Costco are largely a result of last summer's corn and grain hikes as well as the tainted peanut production. However, if food costs go up, people will spend less, etc. - It is possible to have rising costs for some items in a deflationary cycle.
Deflation is not the opposite of inflation, and economic models are not set in stone. The stagflation of the late 70's was considered impossible before it happened.
Food supplies may continue to be an increasing cost. Housing, big ticket items, and labor will likely be cheaper. In the balance, the economy will probably see low inflation figures throughout 2009.
Prices at Costco are largely a result of last summer's corn and grain hikes as well as the tainted peanut production. However, if food costs go up, people will spend less, etc. - It is possible to have rising costs for some items in a deflationary cycle.
Deflation is not the opposite of inflation, and economic models are not set in stone. The stagflation of the late 70's was considered impossible before it happened.
Food supplies may continue to be an increasing cost. Housing, big ticket items, and labor will likely be cheaper. In the balance, the economy will probably see low inflation figures throughout 2009.
You can leave an optional "tip" with Mahalo's virtual currency, Mahalo Dollars. If you are asking a difficult question that might require some research, or if you'd like a wide variety of feedback, a higher tip often leads to more answers to your question.
M$
Very good answer. If something were to dramatically increase in 2009, what would it be?
Fuel/petroleum costs seem to fluctuate according to no particular rationale, so energy costs might go up, I'm hoping not "dramatically".
I'd have to guess - and this is only a guess - that some food costs will go up fairly steeply. Probably grain-based items.
I don't agree with Mr. Schiff on this one. Up to last summer (as prices were really rising), I collected a personally relevant "basket of stuff" similar to that of the CPI every month. Excluding housing, inflation at that time was about 5% for the things I buy (which was the point, I was seeing how I differed from the norm.)
Using a non-CPI standard, periods of inflation are generally marked by increases in wages. We know that's not happening. The tanking of housing values - which is beginning to affect rents - is also contrary to indicators of inflation.
Economics is as much an art as a science, and by selectively viewing the right indicators any viewpoint can be justified. I could be wrong - so could Mr. Schiff.
Will home values depreciate in price in 2009?
Will food, energy, and commodities inflation in 2009?
Will corporate taxes increase or decrease in 2009?
Will private income tax increase or decrease in 2009?
Will unemployment increase or decrease in 2009?
Will corporate lending increase or decrease in 2009?
Will M1 and M2 increase or decrease in 2009?
I agree with your observation that it is possible to have rising food prices in deflation.
I noticed motor oil had increased about 10%. Peter Schiff claims inflation is really 10%. Do you agree with Schiff?
I put on my Carnak turban (dating me terribly), put the envelope to my forehead, and saw:
Home values will continue to depreciate in 2009.
Some food will inflate, mainly grain products.
Energy costs are difficult: Middle East & Venezuela are turbulent.
Commodities in 2009 will see a lack of demand for manufacturing. Copper, for instance, will decrease. Tangible commodities for investments as people lose faith in the banking system may increase. Gold is perceived as having real value when other investments scare people.
Private income tax will decrease. Other taxes - sales, possibly fuel - will increase.
Unemployment will continue to increase, at least over the first half of 2009.
Corporate lending: Corporations are being encouraged to lend, but we're seeing relatively little movement except in mergers. I think this may be the toughest one to predict.
M1: Probably not in 2009, unless it's in the latter months.
M2: Tough call. People are inclined to save more, but few have excess resources to do so. Bank closures are making people uneasy, so more people are keeping reserves at home.
And your predictions? (This is fun - aside from my husband, no one else wants to get this much in depth!)