Saturday, February 28, 2009

A Deflationary Spiral Gathers Pace

The arrival of deflation is well nigh and with it the worst nightmare of policy makers in the US is about to unfold. I have already alluded to this here: and the above chart merely confirms what has been brewing in the US and Canada over the past one month or so. While prices actually edged up 0.3 percent in January 2009 over December 2008, the real fact of the matter is that on year by year basis, after adjusting for seasonal variations, prices were indeed down by 0.2% (later revised to 0.8%). Add that to the o.8% decline in December, the 1.8% decline in November, another 0.8% decline in October and a nightmarish trend begins to emerge. This is attested to by this observation:

"On a month-over-month basis, however, prices fell for the fourth month in a row, down 0.3 per cent as the effects of the recession undercut pricing power. While gas prices increased on the month, cars, in particular, were much cheaper." .

Add to that the larger than expected contractiion of 6.2% in the preceding quarter, the sudden fetish for cutting back and savings gripping the debt-laden American consumer and the diminution of asset values, :


and we have the unfolding of a potentially devastating cockscrew-like downward spiral into the abyss.

Revert: If that deflationary spiral does indeed materialise, then its the end of the illusion spun by the Messiah of Change. Stupid fella, this Berak Obummer!!

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