Let's talk about the D word!

I saw a couple of articles on deflation (linked below) in the past couple of days.
I've always seen deflation as by far the main risk to property investors and now it seems that it might be becoming a reality.

What are your views? How long will we have deflation for? How bad is it going to get? When will we reach a 2% CPI increase next? Will the government and RBA counteract deflation by devaluing the dollar?

Deflation spiral risks Depression repeat
Australia is heading towards deflation: What this means for you

 

Inflation (and deflation) is not equal for all goods. There has been deflation in furniture, shoes, clothing, whitegoods, cars, electronics, etc for years due to cheaper imports. That has been a boost to other things (services consumption, property) as people have more spare money.

The inflation = property price growth argument worked when inflation was more uniform and tied to wage growth, and couldnt be countered by imports. This hasnt been the case for a long time now. If deflation directly impacted property prices, how do you explain the property booms we've had when inflation has been low for so long?

Deflation probably means lower interest rates, and a lower AUD.

 

The CRB Index represents a basket of commodities ranging from Oil, Coffee, Corn, Wheat, Cotton, Gold, Silver, Natural Gas etc. Its down about 38% since the beginning of 2020, global growth is slowing. On the flip-side governments are printing money and pumping it into the economy

 

$1 Menu

 

The old school definition of inflation was the amount of currency in circulation.

Central banks balance sheets are going nuts atm.

 

Deflation is supposed to be bad because people wouldnt buy stuff if it is cheaper next year.

now we fully expect electronics, cars and whitegoods to be cheaper next year. Doesnt stop the consumption.

deflation due to wage cuts and unemployment are not good.

Deflation due to falling oil prices are probably good.

 

Think the main word this year is the R word and hopefully one that wont lead to the D for Depression word.

 

I think as @Trainee said it all depends on what is deflating. If it is energy, food, travel, entertainment, consumer goods etc then that can be good. If it is the value of your assets and your income not so much.

I think asset prices will generally hold up, the global reserve banks playbook seems to say the solution to all problems can be solved by massive cash stimulus. That environment has to put a floor under asset prices. Look at the US share market. They have a full blown pandemic raging with ten's of thousands dead, millions unemployed, and loss making zombie companies leveraged to the eyeballs and the sharemarket is still only back to where it was in mid 2019. Would be very scary without a couple of trillion $US in stimulus from the fed.

 

I read an article and this should give some perspective of the task facing the global economy moving forward. To paraphrase it, in just the last 5 weeks in the USA, the surge in unemployment claims has exceeded the number of jobs created in the near-decade of expansion that ended in February.

A decade of gains wiped out in 5 weeks - a sobering thought.

 

Australia is on the brink of deflation. Here’s what it means to you

Rising unemployment, business slowdowns and collapsing oil prices could fuel Australia’s worst decline in headline inflation since the 1960s, according to a prominent economist.

The prediction follows Reserve Bank governor Philip Lowe’s grim admission on Tuesday that “inflation will turn negative in June,” as he warned of a Great Depression-sized economic collapse.

AMP Capital Chief Economist Shane Oliver told The New Daily it’s “quite probable” inflation will fall two per cent over the coming quarter alone, bringing the annual inflation rate to minus one per cent.

“It will be the biggest fall in the Consumer Price Index (CPI) since the June quarter of 1962,” Mr Oliver said.

“There has been a period since the middle of this decade – around 2014, 2015 – where inflation has been below target and the longer that went on, the greater the risk of potentially flipping into deflation.”