This talk of concerns about deflation is quite perplexing. And, exasperating.
Since it is quite clear that the entire globe will be experiencing economic contraction this year why should anyone in Malaysia be concerned about deflation?
And, more to the point, is it disinflation or deflation when prices fall after an obvious economic bubble caused by American hedonism?
Wasn't it only a matter of 2 or 3 months ago that the talk was about how sticky prices were as the inflation rate stubbornly refused to come down?
And, now, suddenly we are told to be fearful of deflation. What gives, man?
Okay, enough sanctimonious ranting. It's off the chest now.
Falling prices is not good for businesses because it is likely to mean 2 things. First, less people are demanding and consuming their goods or services. Second, the profit margins may be compressed and become thinner.
Falling prices are good for consumers because goods and services become more affordable.
Falling prices are bad for those consumers who are employed in certain weaker businesses because they may experience pay cuts or, lose their jobs.
Falling prices may be good for the re-generation and restructuring of the economy because businesses that made risky decisions will fail. Business activities that are obsolete will have to die. This clears the way for new businesses that are more robust and well-managed and, businesses in new and innovative areas to come up and flower.
There are many facets to any economic equation. There are trade-offs.
But, the overriding principle must be that the weak and inefficient businesses and business activities must be allowed to die.
Workers that are caught in the dying throes of businesses that are obsolete (like certain wafer plants in places like, say, Kulim) can be re-trained. Workers that are part of businesses that took huge risks and failed, can look for other similar jobs elsewhere.
Economic stimulus packages will be useless if they are directed towards propping up obsolete sectors and, businesses that are strong in political lobbying, like, say, the property development sector (for example, the first stimulus package is directed almost entirely at building materials...why?).