Deflation

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Motley Fool  Sep 13  Comment 
Food stocks, including restaurants and grocery stores, have been getting hammered largely due to a drop in commodity prices.
Benzinga  Sep 13  Comment 
Goldman Sachs expects Supervalu Inc (NYSE: SVU) to continue to face deflationary trend in the near-term, citing cuts in SNAP and competition. As a result, analysts reduced ID sales outlook for Save-A-Lot and retail divisions in the...
Forbes  Sep 12  Comment 
Where food-focused companies ranging from Campbell Soup to Supervalu have been reporting lower-than-expected earnings and outlooks in recent weeks, United Natural Foods is bucking the trend. The organic and natural foods distributor reported...
Benzinga  Sep 12  Comment 
Shares of Kroger Co (NYSE: KR) hit a new 52-week low of $30.70 on Monday, but Shane Higgins of Deutsche Bank remains convinced the grocer is best positioned to survive a looming price war among grocery stores. Kroger's stock has lost nearly 5...
Benzinga  Sep 12  Comment 
On September 9, Kroger Co (NYSE: KR) reported a 7 percent increase in its adjusted earnings for fiscal Q2 to $0.47, beating the consensus and the estimate. Argus’ Chris Graja maintains a Buy rating on the company, but lowered the price target...
Benzinga  Sep 10  Comment 
While consumers have benefited this summer from continued deflation in food prices, investors in food retailers have been starving for returns. From grocers like SUPERVALU INC. (NYSE: SVU), which cut guidance Thursday, to restaurant chains...
Benzinga  Sep 9  Comment 
Kroger Co (NYSE: KR) reported on Friday its second-quarter results in which revenue fell short of expectations and management revised its full-year earnings guidance lower. For investors, this could be a concerning sign, but for consumers,...
Benzinga  Sep 8  Comment 
Sprouts Farmers Market Inc (NASDAQ: SFM) lowered its H2 guidance, driven by persisting, and potentially worsening, deflationary pressures in Q3. David Magee of SunTrust Robinson Humphrey maintained a Buy rating on the company. Deflationary...




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Deflation happens when prices of goods and services are falling in an economy. It is the opposite of inflation.

Causes of deflation: In mainstream economics, deflation may be caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of money going down and the supply of goods going up.

From a monetarist perspective deflation is caused primarily by a reduction in the velocity of money and/or the amount of money supply per person.

In modern credit-based economies, a deflationary spiral may be caused by the (central bank) initiating higher interest rates (i.e., to 'control' inflation), thereby possibly popping an asset bubble or the collapse of a command economy which has been run at a higher level of production than it could actually support.

Effects of deflation: Deflation increases sales and economic activity by making essentials (food, housing, fuel etc.) which cannot be delayed, more affordable to struggling consumers, thereby reducing severity and duration of recession.

In more recent economic thinking, deflation is related to risk: where the risk-adjusted return of assets drops to negative, investors and buyers will hoard currency rather than invest it, even in the most solid of securities. This can produce the theoretical condition, much debated as to its practical possibility, of a liquidity trap.

Deflation is, however, the natural condition of hard currency economies when the rate of increase in the supply of money is not maintained at a rate commensurate to positive population (and general economic) growth. When this happens, the available amount of hard currency per person falls, in effect making money more scarce; and consequently, the purchasing power of each unit of currency increases. The late 19th century provides an example of sustained deflation combined with economic development under these conditions.

Counteracting deflation: Until the 1930s, it was commonly believed by economists that deflation would cure itself. As prices decreased, demand would naturally increase and the economic system would correct itself without outside intervention.

This view was challenged in the 1930s during the Great Depression. Keynesian economists argued that the economic system was not self-correcting with respect to deflation and that governments and central banks had to take active measures to boost demand through tax cuts or increases in government spending. Reserve requirements from the central bank were high and the central bank could then have effectively increased money supply by simply reducing the reserve requirements and through "open" market operations (e.g., buying treasury bonds for cash) to offset the reduction of money supply in the private sectors due to the collapse of credit (credit is a form of money).

With the rise of monetarist ideas, the focus in fighting deflation was put on expanding demand by lowering interest rates (i.e., reducing the "cost" of money). This view has received a setback in light of the failure of accommodative policies in both Japan and the US to spur demand after stock market shocks in the early 1990s and in 2000 - 2002, respectively. Economists now worry about the (inflationary) impact of monetary policies on asset prices. Sustained low real rates can be the direct cause of higher asset prices and excessive debt accumulation. Therefore lowering rates may prove only a temporary palliative, leading to the aggravation of an eventual future debt deflation crisis.

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