Saturday, May 2, 2009

Deflation Worry

I am discussing economics again today. The rate of inflation is now close to zero in the United States and several other major countries. The Economist has already reported that economists it had surveyed predict that consumer prices in the United States and Japan will actually fall for 2009 as a whole, while inflation in the euro zone will be only 0.6%. South Korea, Taiwan, and Thailand will also see declines in consumer price levels. Malaysia is not in this list of highlighted countries, but as a Malaysian, I know that prices are still ambitiously high.

The prospect of falling prices reflects the near-collapse of industrial production, the resulting lofty level of unemployment, and the dramatic decline in commodity prices. Indeed, industrial production is falling at double-digit rates in the negative-inflation countries, and the price index for all commodities is down more than 30% over the past year, according to Martin Feldstein’s article “Deflation doldrums?” that was featured in today's Star (May 02, p SBW7).

And so, Feldstein has warned us of the lurking danger that is deflation. To him, deflation is potentially a very serious problem, because falling prices – and the expectation that prices will continue to fall – would make the current economic downturn worse.

So, just because inflation has somewhat eased, and there are additionally some other so-called positive signs – this does not mean that we are out of the woods. Methinks, Feldstein is right.

Bleak news from a Freedom House study that reported that press freedom declined around the world in 2008, deteriorating for the first time in every region. Furthermore, the Committee to Protect Journalists (CPJ) unveiled its list of “10 worst countries to be a blogger’, naming Myanmar, Iran, Syria, Cuba, Saudi Arabia, Vietnam, Tunisia, China, Turkmenistan, and Egypt to its “dishonor roll” (The New Straits Times, May 02, p 26). It's great to be a Malaysian...

In the SPL, Celtic bested Aberdeen 3-1, the Celtic goals coming from Caldwell (44) and McDonald (72, 90+2).

And of course, I had waited for an English miracle, but it was in vain. Man U expectedly beat Middlesbrough, 2-0. I can only look to their next match.

In the Arsenal versus Portsmouth match, the Gunners routed Pompey 3-0; their scorers were Bendtner, 13 & 41 (penalty); and Vela, 56. No surprise here.

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