Deflation

In examining various consumer and producer price measures going back for as long as 1000 years, it was found that prices have risen about 60% of the time and fallen about 40% of the time in the Western world.

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A preview of our new U.S. inflation histograms, soon to be regular features of our quarterly Benchmarks publication.

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Today, many are concerned about the potential negative impact of deflation and the stock market. Our work demonstrates that moderate deflation has typically not been a hostile stock market environment. However, deep deflation (5%-11%) has historically been a bad time for stocks.

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Regardless of the recent reported upticks in the GNP Deflator and CPI, our Early Warning Inflation work provides little if any evidence that inflation is beginning to accelerate. Five of our inflation analytical tools are presented and discussed, along with the risks of Deflation.

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At this point there is no indication inflation may be about to accelerate. Some may recall that in the early spring of 1984, this work led us to conclude that 1984 inflation might be a lot lower than most then thought at the time. This section also includes comments on the possibilities of deflation and what might be expected if it does occur. It probably would not be the disaster some seem to think.

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