Deflation is spreading from the core of the global system to the most unexpected regions of the world, observes financial journalist Ambrose Evans-Pritchard.
Prices are sliding in Peru, Chile, Colombia, Paraguay, Bolivia, Ecuador, Guatemala, and El Salvador, to the consternation of everybody — and "any misjudgment by the big central banks from now risks setting off a chain-reaction that may prove very hard to stop," Evans-Pritchard writes in the UK Telegraph.
Evans-Pritchard points out that because authorities failed to anticipate this, investors should be wary of their assurances that we face nothing more than a brief dip in prices before rising energy costs bring back inflation.
“The sum of economists in the world (outside Japan) familiar with the cultural and psychological dynamics of deflation can fit into one London bus, and most are historians of the 1930s,” he says.
“No doubt prices will rebound as the ’base effect’ of oil prices kicks in. But by how much; for how long?
Chicago Federal Reserve Bank President Charles Evans says economic deflation in the United States has been averted, but that it is still too early to begin "removing policy accommodation" in order to prevent inflation.
"Just as the Fed acted responsibly to prevent a potential deflation, it will do so to prevent a future increase in inflation above our price stability objective," he said in a speech before the Council on Foreign Relations.
"Unfortunately, this sounds too much like, 'just trust us to do the right thing.’”
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