Whatâs Going On Here?According to data out late last week, the prices of Japanâs goods and services shrank last quarter compared to a year ago â plunging its economy back into deflation. What Does This Mean?The prices Japanese shoppers paid in October, November, and December fell versus the same time the year before, and in December specifically, that drop was 1% â the countryâs biggest in over a decade. This isnât exactly new territory for Japan: itâs long struggled to push prices up and, in turn, get its economy firing on all cylinders. This time, though, the countryâs anti-coronavirus measures could make things a lot worse: new curfews will discourage people from spending their money, making businesses less likely to raise their prices and more likely to offer cut-price deals. Why Should I Care?For markets: Deflationâs bad for growth.
Shoppers donât spend as much on nice-to-haves when thereâs deflation: falling prices, after all, mean things will probably be cheaper tomorrow, and the day after that, and the day after that. The longer that downward spiral continues, the more it stunts economic growth â which is why central banks do everything they can to avoid deflation. The European Central Bank, for example, is worried it wonât be able to stop eurozone deflation, while the US Federal Reserve might need to step in if the governmentâs big spending isnât enough to create inflation.
Zooming out: Already knee-deep in deflation.
Veteran investor Mark Mobius thinks economists are wrong, and that weâve actually been in a state of global deflation for years. See, economists donât compare apples to apples when they look at inflation trends: they measure the prices of a typical basket of goods for the era. If you were to compare two apples-to-apples products over time â like, say, a car from the â50s and one from today â the older one would be cheaper today than it was back then. In other words, prices have been falling, not rising. | 