First, Deflation.
Even through the years of the recent housing bubble, the U.S. economy as a whole did not experience any significant inflation, due to the balancing effects of other commodities like energy (excluding oil during the past 18 months) and consumer goods.
A very crude, simplistic explanation in real-world terms: during the U.S housing bubble, Wal-Mart expanded into smaller & smaller communities while adopting an entirely new (grocery) business, and surrounding larger U.S. cities with multiple stores. This is no accident, of course, because it ensures that a large majority of Americans are now within a 30-minute drive of a Wal-Mart store, and they make a large share of their annual spending on consumable goods at that store. Wal-Mart's effect of driving down prices (their own prices and their competitors' prices) is just one example of how the U.S. economy has avoided inflation, even during the past 2 decades of rapidly increasing prices on the most-valuable assets of most american families.
But now housing prices are falling, too.
This makes it almost impossible to slow down deflation, much less prevent it.
The Obama administration's monetary and fiscal policies will cause inflation, to be sure- but not until the national economy rebounds. And right now, when that rebound will happen is completely unpredictable. Until the economy begins to grow, there will be too few significant commodities with rising prices which will balance against deflation- possibly oil, and products whose prices are linked to oil, such as agricultural products via the ethanol industry.
This is just something to think about the next time you drive past a gas station with increasing prices- the rising price of oil might be a good thing, because it is virtually the only thing slowing down the cycle of deflation.
Click here to read why deflation is just as bad as inflation.
