Little economic data was released this week, but we did have inflation news. The CPI (Consumer Price Index) and the PPI (Producer Price Index) were released for February. No one is talking about inflation, in fact, no one is talking about anything other than the coronavirus, but inflation and its inverse companion deflation should be at least brought to everyone’s attention.
The CPI number came in as expected, staying very low at .1% which happened to be the same rate as the month before. The PPI came at shrinkage of .6% when it was expected to shrink by only .1%. The January number was an increase of .5%.
With the virus spreading and fear gripping every economy around the world, there is a danger in falling into a deflationary cycle. Japan had to deal with that for over a decade and if you want to see what kind of damage that can do, look at their economy from 1990 to now. The poor performance is not all due to deflation, but it was a big part of the problem.
With the PPI being negative and the CPI very close, then adding a possible recession or at least a strong fall in economic activity, deflation is a real possibility and we have very little experience in dealing with it.