Where's deflation?

22 Aug, 2015

This is apropos 'Approaching or landed in deflation?' carried by Business Recorder yesterday. The writer, a noted economist, has argued, inter alia, "Deflation, as opposed to inflation, is defined as the persistent decline in general price level. Deflation occurs when the country's inflation rate continuously declines and falls below zero percent (a negative inflation rate). Inflation rate, as measured by the changes in Wholesale Price Index (WPI) was 6.6 percent in July 2014 and within four months, it decline to zero percent (November). It turned negative (-0.9%) in December and remained negative for the last eight months in a row (-2.9% in July 2015). Adjusting for food and energy, the inflation rate is in negative."
He may be right, albeit partially, insofar as definition of deflation is concerned because here he seems to have lost sight of the fact that central banks all over the world make enduring efforts to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum. Deflation is always characterised by a general decline in prices. In Pakistan, however, such a trend is hardly noticeable. Why? It may be because of the fact that deflation has not set in as yet.

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