Welcome sign to consumers possible indication of deflation.


Even though for a economically literate reader the definition of deflation is that of decrease in money supply indicators such as M0-M3 etc. and more importantly in credit/debt levels outstanding, the less sophisticated news media reporters and Joe Six Packs continue to think of it in terms of Consumer Price Index, or simpy put decrease in prices. Nevertheless, the monetary contraction is now beginning to make its way into CPI stats.

Local Kentucky channel of ABC.

Welcome sign to consumers possible indication of deflation.

(WHAS11) – You may have noticed that your trips to the grocery store aren’t as expensive as they once were. This is because the price of ordinary staples, like milk and meat, have fallen over the past months.

It may seem like good news, but some economists say, don’t celebrate just yet.

Harry Hurst, owner of Hurstlan Dairy Farm said, “We’ve cut back on most everything we can.”

But still, times are tough for Hurst. Over the past few months, the prices of milk and beef, his two main products, have fallen dramatically. In the 55 years he’s owned this farm he’s seen prices fluctuate, but he says, this is the first time he’s ever seen it this bad.

Hurst said, “Most of the time it was a steady increase a little bit.  Sometimes it would go down, sometimes it would go up, but compared to the margin, the difference in it was very little than it has been in the last 7, 8 months.”

That has Hurst working harder, but making less money.

But at the grocery store, consumers are paying less. The price of a gallon of milk is down an average of 21 cents, and ground beef has declined by about 31 cents a pound. Some say they have noticed the difference.

Dave Newman said, “Milk prices have gone down and some meat prices are doing that.”

While others say they haven’t seen any change in their grocery bill at all.

Patricia Miles said, “(Are prices) going down, no . . . I haven’t noticed that.”

Either way, to most, lower prices may seem like good news.

But UofL Professor of Finance, Russ Ray, says, not so fast.

Professor Russ said, “When prices go down for a short period of time that’s okay.  When prices go down for a long period of time that’s a condition known as deflation and deflation can really hurt an economy because it cuts the profit margins in businesses and they start laying off.  And when they start laying off, then people stop buying and that cuts the profit margin even further and it gets into a vicious cycle.”

A cycle that Harry Hurst says he’s struggling to get out of, and only hopes that prices rise sooner than later, so he won’t have to close his family’s farm.

Milk and beef aren’t the only products you’re paying less for.  Produce prices are also down about 8.7 percent.

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