Philippines April 13, 2016
MIT - can deflation be prevented?
Deflation a threat to investors?
The plunging oil prices may be good for consumers: those who use gasoline and diesel fuel (like in fuel thirsty country like US) But not good for the oil producers. It has created difficulties and hardship for oil drillers rig makers, employees of oil companies, lenders to oil industry. No investments are being made in oil production. It has affected not only those in the industry but outside the industry. It has also created downward spiral elsewhere in the economy.
In the ME a number of OFWs who work in the oil related industries are being sent home. So this has affected consumer behavior as well. Many consumers are buying less. Economist say this is deflationary which is worrisome. Prices will continue to plunge contracting the economy and leaving in its tailspin an economy in recession.
Deflation raises real value of debt and makes it harder to service. It is a threat to investors. For many central banks, the lower limits of low low interest rate has been reached. (Why Japan now has negative interest rate?)
In most countries recession is tame, or no longer poses a threat.
Countries with floating currency like Japan and US can counter this with printing more money. Easier said than done.
Do you agree?
