Smells like deflation

Have you noticed the free fall in diesel prices charted in the Fresh Talk chart?Well, here in Kansas, we are paying in the $1.50 range for gas right now. The drop in energy prices should be a good thing, but some are worried. From a recent story on www.canada.com


Canadians, in fact, are seeing energy deflation every time they drive by a gas station. Just five months ago, pump prices in Canada shot past $1.35 per litre and were headed higher. Now, in many parts of the country, gas prices have fallen to 75 cents per litre or lower, and could drop even further.

Falling prices in just one product category, such as energy, are not necessarily a bad thing. And, in fact, many Canadian drivers might cheer dropping gas prices. But when prices across a broad range of categories such as housing, food, appliances and so on, start falling, economists and governments begin to worry. That's because consumers typically respond to a deflationary environment by holding off on some purchases in the expectations that prices will drop further and they will be able to get a better deal.

TK: Consumers may be tighter with their money when it comes to a new sofa, but my presumption is that food purchases won't be put off for "deflationary" worries on the part of consumers. Produce marketers will dodge a bullet on this issue, which is not to say retailers won't try to squeeze f.o.b. prices ever lower.