Around the World Inflation Is Falling to Levels Not Seen for Years

¶ … inflation is falling to levels not seen for years," Floyd Norris (2013) argues that there is a trend towards slow inflation growth in many Western countries. The author presents evidence in the form of inflation figures from the U.S., the UK, Japan, and the Eurozone. The author cites lower oil prices and slow growth in the price of durable goods as contributors to this phenomenon.

What needs to be separated here is the headline, which was not necessarily written by the author of the author (indeed, almost certainly not). Taking that away, the author is merely recounting some economic trends using publicly-available data. It is perhaps a little presumptuous of the headline writer to argue that inflation is falling around the world when the actual evidence presented is only from specific parts of the developed world. Nobody will dispute that there are the largest economies in the developed world, but there is no talk of inflation in other major Western economies like Canada, Australia or Switzerland, and there is no talk of major emerging economies either.

The reality is that many major economies are facing a long-term trend of slow economic growth. These economies are reaching a point of diminishing returns on productivity, which combined with slow population growth and natural constraints on resource exploitation will inherently constrict things like inflation as well, because economic activity is never going to get to the level where interest rates will need to increase, or where prices are going to increase in response to decreased price sensitivity on the part of the markets.

Inflation is the rate at which the "general level of prices and services is rising and, subsequently, purchasing power is falling" (Investopedia, 2013). The author is not passing any judgment in this paper, and is not ascribing any qualities to the argument. What is needed from the author is some sort of context. It is important to understand what it means if inflation is stagnating. This is the core problem with this article - it starts a conversation without finishing it . The reader is left hanging, wondering what the point of caring about this issue is.

There is some macroeconomic evidence that inflation is sluggish in many Western countries, but this is not tied into anything that informs as to what an investor or business should. There are many ways to approach the issue of inflation, but none are discussed in the article.

The article is based on a solid and accurate assessment of the facts. The reality, though, is that these facts are not provided any context. The author hints at the problems associated with deflation, but does not get into that much. There is a lot of discussion in the economics field about the concept of deflation, but in this case the author simply mentions it in passing.