TO SOME OF YOU WHO MAY NOT KNOW..ZIMBABWE HAS OFFICIALLY ENTERED INTO DEFLATION...BUT WHAT DOES DEFLATION MEAN? IS IT A GOOD THING? WHAT ARE THE IMPLICATIONS? BELOW IS A GENERIC OVERVIEW OF DEFLATION: Definition of Deflation A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum. Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Reserve Bank (RBZ) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind. [ however, we are cannot relieve said pressure as the Central Bank does not have funds] Deflationary periods can be both short or long, relatively speaking. Japan, for example, had a period of deflation lasting decades starting in the early 1990s. The Japanese government lowered interest rates to try and stimulate inflation, to no avail. Zero interest rate policy was ended in July of 2006.
Posted on: Wed, 19 Mar 2014 10:37:03 +0000
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