Deflationomics: A Recession Will Cause Price Drops

Jul 19, 2022 | Economic Collapse

Price deflation is a word that the world economy hasn’t heard in a long time. The 9.1% inflation rate has made everyone frown, shake their heads, and howl to the economic heavens, wondering when this inflationary nightmare will end. Even though skyrocketing prices have become the norm and are likely to stay that way for a long time, consumers can take some comfort in the fact that a recession is likely to cause a period of deflation.

It seems likely that the Federal Reserve will kill the economy to get rid of a consumer price index (CPI) that is the highest it has been in 40 years, giving the public a choice between cyanide and strychnine.

Since the CPI report for May, prices for crude oil and gasoline have gone down by about 20% and 8%, respectively. After several months of a supercycle, the broader commodities market has also been bleeding red ink, with many hard and soft crops posting double-digit losses over the last month.

Could this be the thing that finally brings down broad-based inflation, which has been going on for 18 months in the US and around the world? This is what economists and the White House think will happen.

In fact, policymakers will flex their muscles, thinking they have won the battle against inflation that has been high for four decades. They might be to blame for prices going down, but not in a good way.

In the energy markets, crude futures have fallen mostly because more people are worried about a recession. People are worried that higher interest rates and higher inflation, which are both caused by the government and central bank, will hurt consumer demand and cause the economy to slow down.

Many market analysts and economists say that the US is in the middle of a recession. The GDPNow model from the Fed Bank of Atlanta says that the growth rate for the second quarter was -1.5 percent.

Investors were happy about the June retail sales report, which showed a 1 percent increase over what was expected. But the most important measure has been going down since February, even shrinking by 0.1% in May. Also, real consumer spending went up by only 1.8 percent in the second quarter. The market expected personal spending to go up by 0.4% in May, but it only went up by 0.2%.

The National Federation of Independent Business (NFIB) Optimism Index has dropped to 89.5, which shows that these numbers have also hurt business sentiment. If companies are less optimistic, they will act that way, and this is shown in a number of labor reports: since early April, the number of initial four-week jobless claims has gone up every week, and small firms are laying off tens of thousands of workers every month, job openings have slowed down, and job cuts have grown. If there are fewer jobs available, wages will go down, too.

The Federal Reserve is, of course, the biggest problem. After reaching its highest point in March 2022, the amount of money has dropped by about 0.5 percent. This means that as Powell & Crew tried to tighten things up, less money was printed and put into the economy.

Since the astronomical amount of new units of currency pumped into the international market is what caused today’s crazy price inflation, a deflationary period is not impossible.

Simply put, a recession, falling demand, and slower growth of the money supply could all lead to a new period of deflation. Unfortunately, it won’t happen overnight because high inflation is a stubborn girlfriend. But just think about how badly Republicans and Democrats in Washington dropped the ball and made this terrible situation happen: drivers are paying $4.50 for gas and 19% more for meat, parents are having trouble finding baby formula, and shoppers are buying smaller products for the same price which is known as shrinkflation.

We can only hope that Keynesianism and statism will be consigned to history once an economic downturn or an extended period of stagflation takes place.


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