Inflation vs deflation

Opinions are divided over whether inflation or deflation poses the biggest threat to the industry

Ted Scott. To understand whether inflation is a realistic threat in what is predominantly a deflationary environment, one has to comprehend where it is likely to come from. Inflation originates from an increase in demand. Excess demand is not currently an immediate threat; indeed, the private sector is intent on restoring its balance sheet and disposable income is likely to shrink as taxes are raised and public spending is cut. Inflation from a supply side shock (cost-push inflation) is more pernicious and there is a slight risk of this occurring during the current cycle. The greater ...