A number of economists have warned for years that deflation is an economy’s most serious problem. Deflation is negative price inflation, or a simultaneous fall in a broad range of prices for many goods and services.
A sustained deflation has serious economic effects:
A sustained fall in sensitive commodity prices those that lead changes in the general price level, such as gold, the exchange value of the dollar and prices of long-term Treasury securities will eventually affect the whole economy.
Now we are starting to see deflation showing up in U.S. price indexes.
However, some economists maintain inflation is the true economic problem. Milton Friedman has warned that previous increases in the U.S. money supply may lead to inflation next year.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, November 21, 2001.
For text http://www.ncpa.org/edo/bb/2001/bb112101.html
For more on Inflation and Deflation http://www.ncpa.org/iss/eco/
FMF Policy Bulletins\27 November 2001
