Monday, October 19, 2009

Tamny: Inflation vs Deflation

My Starbucks Frappachino now costs 6% more ($.25) as of last this a sign of inflation or the taking advantage of an addict?

In my previous column I talked about Deflation and Inflation, the linked to article does a great job in explaining the Inflation issue.

"Most notably, deflation's advocates point to falling prices for certain goods, such as cars, clothes and hotel rooms, as evidence that the general price level is falling. The problem at first glance is that falling prices in isolation are not evidence of deflation.

Consider hotel rooms in New York City. Relative to three years ago, they've become much cheaper. But far from evidence of deflation, falling hotel prices merely expand the range of goods visitors to New York can purchase. If hotel rooms cost $200 less per night, tourists by definition have $200 more to spend on other goods previously out of reach. The impact on New York's price level is zero."

Scott Dauenhauer CFP, MSFP, AIF