Outside the Box

At Last, Someone Apologizes for Deflation

May 18, 2016

Much of the world is in the grip of deflation and negative interest rates, with all kinds of negative consequences. Yet no one takes responsibility. Who do we blame? How do we get them to change their ways?

I’m happy to report that someone is finally stepping up. The New York Times reported this morning that Akagi Nyugyo, a Japanese ice cream company, is airing a televised apology for raising its prices. Grim-faced executives and workers face the camera as a subtly humorous folk song plays and then bow deeply in contrition.

This probably seems very, very strange to American and European viewers. It’s also amusing, at least to me, but there’s a serious point here. Most of us grew up in a world where inflation is normal. We expect prices for most goods and services to go up a little bit each year. That perception is starting to change, but it is still the default setting for most people, even economists.

The Japanese have a very different perception after 25 years of deflation. They expect prices to fall, not rise, or at least to remain steady. Akagi Nyugyo hadn’t raised the price of its signature ice cream bars in decades. Higher lumber expenses (for the sticks) finally forced their hand. The company feels terrible and decided to it should apologize.

Will we see American companies doing this in a few years? Well, don’t hold your breath, but if we do it won’t be the weirdest economic development of the century. The strange new beat goes on.

I am in Abu Dhabi as you read this, having endured a long non-stop but reasonably comfortable flight here on Etihad Airways. I have one more speaking engagement in Raleigh, North Carolina, next Monday, and then it’s back to Dallas for my own Strategic Investment Conference. It will be great to see so many old friends and make some new ones, too.

Finally, I want to thank everyone for the very kind and thoughtful responses to last weekend’s Thoughts from the Frontline. “Life on the Edge” drew far more social media shares and positive comments than usual. I think we are all beginning to realize how far off course we’ve steered the economy. I expect many more bumps before we get back on track. Like all of you, I’m trying to figure out how to minimize the pain.

Your fastening his seat belt analyst,

John Mauldin, Editor
Outside the Box

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In Japan’s Slow Economy, Rare Price Rise Prompts Surplus of Remorse

Originally published in The New York Times
May 18, 2016

A teenager in Kawasaki, Japan, getting a Garigari-kun, a popular ice cream bar.
The price of the bar was recently raised for the first time in a quarter-century.
Credit Ko Sasaki for The New York Times


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John Sloan

May 19, 6:16 p.m.

Agree with Art
According to David Fischer - in The Great Wave -The three best eras in western history - Equilibrium of Renaissance - Equilibrium of Enlightenment and Equilibrium of Victorian Era were all eras of deflation followed by steady prices - we would have a fine deflationary era now as he predicted but labor refuses to reduce wages along with other prices as was the case in the three mentioned eras. Plus governments now are the largest debtors so cannot stand to have deflation. Actually they require another massive inflation in hopes of paying off debt.

Art Eatman

May 18, 7:46 p.m.

If deflation reduces consumer costs, isn’t that a good thing?  Seems like it would be good for Joe Sixpack and middle-class working folks.  Folks like Joe drive the trucks that haul the food.  Repair the plumbing, cars and around-the-house needs of wealthy investors.  While I hope that investors keep increasing their wealth, I can’t help but hoping for the well-being of Ol’ Joe.

The FRB and government damned sure aren’t.