Deflation properly defined is a net decrease in the money supply and credit, with credit being marked to market. Deflation by that measure went global long ago.



This post however, is in reference to sustained price drops widely (and incorrectly) referred to as deflation.



Japan wholesale prices log fastest drop since 2002



In Japan wholesale prices log fastest drop since 2002.



Japanese wholesale prices fell at their fastest annual pace in nearly seven years last month, official data showed Monday, adding to worries about the renewed threat of deflation.



Corporate goods prices fell by 2.2 percent in March from a year earlier, down for a third straight month, the Bank of Japan reported. It was the steepest year-on-year drop since May 2002 and followed declines of 1.6 percent in February and 0.7 percent in January.



"Companies are in tough competition to cut prices due to weak consumer sentiment," said Hideyuki Araki, economist at the Resona Research Institute. "Consumers are now worried about their jobs or pay cuts. It's natural that they want cheaper goods," he said.

German wholesale prices see record decline in 22 years

Wholesale prices in Germany dropped 8.0 percent in March compared with the same month last year, the biggest year-on-year decline since January 1987, the German Federal Statistical Office said Wednesday.



Compared to February, however, wholesale prices declined 0.9 percent, said the Wiesbaden-based statistics office.



Crude oil prices have retreated 66 percent from a record 147 U.S. dollars per barrel in July 2008. As a result, solid fuels and petroleum products were 21.4 percent cheaper in March than a year earlier, the statistical office said.



Prices of grain, seeds and feed declined 42.6 percent in the past 12 months.



Statistics show that Germany's inflation has fallen to its lowest level in almost 10 years, as the global financial crisis has dragged the European Union's biggest economy into its worst recession since World War II.



European Central Bank (ECB) council member Athanasios Orphanides told local media a day earlier that the risk of deflation may push further monetary easing.



Chinese CPI, PPI Negative

US CPI In First Year-Over-Year Decline Since 1955

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955.



On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in March after rising 0.4 percent in February. The decrease was due to a downturn in the energy index, which declined 3.0 percent in March after rising 3.3 percent the previous month. All the energy indexes decreased, particularly the indexes for fuel oil,

natural gas, and motor fuel. The food index declined 0.1 percent for the second straight month to virtually the same level as October 2008. The food at home index declined 0.4 percent, the second straight such decrease, as the index for dairy and related products continued to decline.

US Produce Price Index (PPI) Biggest Drop In 59 Years

Finished Goods PPI

Intermediate and Crude Goods PPI

Notes from David Rosenberg at Merrill Lynch

Spare Capacity



"There seems to be a lot of market chatter today about how the dramatic fiscal and monetary stimulus is going to reignite inflation. Let's get a grip. We have a real unemployment rate of nearly 16% and a capacity utilization rate that looks about to decline to 65%. There is simply too much spare capacity to absorb to be concerned about what the government is going to do except prevent an outright deflationary environment from taking hold."



Deflation in headline to intensify going forward



" Relative to year-ago levels, overall [Consumer] prices fell by 0.4%, for the first dip into deflationary territory since August 1955. Looking ahead, easy energy comparisons versus a year-ago will be a key factor in leading the overall CPI lower in the months ahead. Food prices, eased to 4.4% Y/Y versus a peak of 6.1% Y/Y in October 2008, will also be a factor. By 3Q, we anticipate annual declines of 2.5%. Core prices were unchanged at 1.8% Y/Y in March, though down from the nearby peak of 2.5% in August 2008. By 3Q, the core CPI is also expected to ease toward 1.0%, with depressed demand and more competitive pricing for a broad array of consumer categories as tailwinds.



Underlying weakness in core CPI



" Owners’ equivalent rent – a category that accounts for 31% of the core CPI) – rose 0.2% M/M, in part due to falling natural gas prices, which have an inverse relationship to rent prices. "

OER Grossly Distorts The CPI

understated

overstating

Case-Shiller-CPI (CS-CPI) vs. CPI-U

Bernanke's Deflation Preventing Scorecard

Lessons From History

The Smoot-Hawley Tariff Act was signed into law on June 17, 1930, and raised U.S. tariffs on over 20,000 imported goods to record levels, and, in the opinion of most economists, worsened the Great Depression. Many countries retaliated, and American exports and imports plunged by more than half. The tariff was replaced by lower bilateral agreements in the mid 1930s.

Six million piglets and 220,000 pregnant cows were slaughtered in the AAA's effort to raise livestock prices. Many cotton farmers plowed under a quarter of their crop in accordance with the AAA's plans.



The tax underwriting the AAA was declared unconstitutional by the Supreme Court in the case United States v. Butler, because, among other stated reasons, it taxed one farmer in order to pay another. Farm leaders supported the Butler decision.

The Geithner-Obama-Bernanke policy track trifecta the US is on takes scarce resources (taxpayer dollars) and wastes them on the very banks and lending institutions that exacerbated the problem with foolish lending practices. This extremely poor policy decision is the modern day equivalent of Roosevelt's illegal Agricultural Adjustment Act. The big difference is the massive size and scale of the plan.



Base Money Supply % Change From A Year Ago

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