Inflation, Désinflation, Déflations

Inflation, Désinflation, Déflations

• Inflation: A sustained positive increase in consumer prices. This is the most common global economic situation.
• Désinflation: Positive price changes that are decreasing; prices rise, but more slowly over time.
• Déflations: Negative price changes; prices fall.

Nominal vs. Real Values

• Nominal (or current price) values don't account for inflation, making comparisons across time or countries difficult.
• Real (or constant price) values are adjusted for changes in price levels, permitting a clearer understanding of economic growth.

Causes of Inflation

• Demand-pull inflation: Excessive demand or insufficient supply in a market.
• Cost-push inflation: Increased costs for businesses (salaries, taxes, interest rates).
• Monetary inflation: Increased lending by banks with a stable supply.
• Structural inflation: Monopoly-driven price increases.
• Imported inflation: Higher prices for imported goods or currency depreciation.

Consequences of Inflation

• Positive: Can ease debt burdens for borrowers and stimulate economic activity.
• Negative: Hurts fixed-income earners, discourages productivity gains, harms creditors, and can negatively impact export competitiveness if exchange rates aren't adjusted. Can reduce confidence in national currencies.

Combating Inflation

• Central banks can take action to combat rising inflation by raising interest rates, increasing reserve requirements, and reducing credit availability.

Deflation

• Deflationary pressures are negative for the economy.
• Real Sector: Businesses face reduced profit margins, increase unemployment, and reduced investments when prices fall. Consumers will often delay purchases in anticipation of further price reductions.
• Financial Sector: Reduced prices lead to higher debt-to-equity ratios for companies, worsening credit conditions.
• Historical Examples: The Great Depression and 1990s Japan.

Post-COVID Inflation Shock

• Conjunctural Causes:
  • "Base effect": Inflation is measured annually, and the COVID pandemic lowered reference points for inflation measurement.
  • Demand was pent up, restarting production took time, war in Ukraine hampered exports, and government spending increases (e.g.: subsidies, infrastructure spending)
  • Currency weakness increased imported goods costs, including energy.
• Structural Causes:
  • Rising energy prices due to geopolitical factors, scarcity of fossil fuels, and environmental shifts.
  • Increased demand due to supply-chain issues and pent up consumer demand.
  • Quantitative easing policies loosening by central banks (e.g.: purchasing government bonds while keeping interest rates at record low). Large levels of liquidity faced an economy with limited production potential.

Upcoming Inflation outlook

• Inflation is expected to remain below 2.0% late this year, and at 1.6% year-on-year by December 2024.

Testez vos connaissances sur les concepts d'inflation, de désinflation et de déflation. Ce quiz aborde également la différence entre les valeurs nominales et réelles, ainsi que les causes sous-jacentes de l'inflation. Préparez-vous à découvrir les mécanismes économiques qui influencent nos vies quotidiennes.