Deflation is a decline in the supply of money and credit relative to goods and services in an economy. History shows us that the most important deflationary episodes are accompanied by declines in equity, factory and retail prices.
For example, the 2000-2002 stock market decline coincided with the steepest fall in year-over-year CPI since 1964. The 2007-2009 bear market featured outright negative readings in year-over-year CPI, the biggest contraction since 1949. This time around, consumer and wholesale prices are already approaching outright declines.
A March 13, Bloomberg article is titled "Wholesale Prices in U.S. Unexpectedly Fall for Fourth Month." Here's an excerpt:
Wholesale prices in the U.S. unexpectedly declined in February for a fourth consecutive month, reflecting cheaper food and a slump in profit margins among wholesalers and retailers.
The 0.5 percent decrease in the producer price index followed a 0.8 percent drop the prior month … . The median estimate in a Bloomberg survey of 73 economists called for a gain of 0.3 percent. The so-called core measure, which strips out volatile food and fuel, also decreased 0.5 percent.
Inflation in the U.S. has decelerated as a rising dollar cheapened the cost of imports and crude oil slumped. …
Estimates in the Bloomberg survey ranged from a 0.2 percent decline to a 0.7 percent gain. Prices excluding food and energy were projected to rise 0.1 percent after falling 0.1 percent the month before, the survey median showed.
Compared with a year before, producer prices fell 0.6 percent, the first 12-month decrease since records began in 2009. The core index increased 1 percent in the 12 months ended February, after a 1.6 percent gain.
You can read the entire article by clicking the link below: