Deflationary winds blow

April 21, 2009 4:40 p.m.

There are more signs of deflationary winds in the global economy. the United States, Japan,Spain, the United Kingdom and Canada all report either zero inflation or actual negative inflation in their latest data releases. Prices are either stagnant or falling in these countries.

In Canada the Bank of Canada has wisely cut its overnight rate to 0.25 % in the face of the evidence of falling prices . The Consumer price index has fallen by 0.8 % in the third quarter of 2008 and the central bank now expects the GDP to decline by 3% of the GDP over the next 12 months.
In the United Kingdom the retail price index which includes housing and mortgage prices fell by 0.4 % in March year to year. This was the first negative reading in the index since 1960. The British government led by Labour leader Gordon Brown is planning on continuing its policy of   moderate fiscal stimulus despite sharp criticism from its misguided opposition which continues to insist that the policies are inflationary and not sustainable. The evidence however shows the contrary.

In the U.S. the seasonally adjusted C.P.I. fell 0.1 % in March and energy prices also fell in all three categories.

Prices fell by 0.1 % in Spain for the first time in 50 years. Unemployment is projected by some economists to rise to close to 20 % from its current elevated level of 15.5 %.

These developments if they continue will denote a clear deflationary trend which will need to be addressed by much more   aggressive counter measures.