Don't Mention the D Word (Again)

09/07/2020 6:00 am EST

Focus: GLOBAL

Murray Gunn

Head of Global Research, Elliott Wave International

The denial of deflation. This recent headline from Bloomberg made my eyes come out on stalks:

"Euro Area Inflation Turns Negative for First Time Since 2016"

Consumer prices for the Euro area fell by 0.2% on an annualized basis in August. That was below economists' expectations of a 0.2% rise. The core rate of consumer price inflation (excluding food and energy) hit a record low of 0.4%.

It wasn't the facts of the story that had me rolling on the floor laughing, but the blatant denial of using the word deflation. To be fair, of course, we prefer to use the word deflation in its proper place, in relation to debt and monetary phenomena, but when consumer prices are falling it can be referred to as price deflation. Up until the last year-or-so, the word deflation in the context of price movements has been the preferred nomenclature of the vast majority. The fact that the use of "negative inflation" is creeping into the lexicon is fascinating because it speaks to the ingrained fallacy that ever-rising consumer prices are "good" for the economy and declining prices are "bad."

It's like calling losses on our investments "negative profits." It makes it sound so much easier to deal with (and no doubt trading coaches would probably condone the use) but it masks the reality of the situation. The rise of the "negative inflation-ists" is yet another sign of just how devoid from reality the current market and economy is.

Euro Area CPI YoY%

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Murray Gunn is head of global research at Elliott Wave International and lead contributor on deflation.com.

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