Is Deflation a possibility?
Deflation is a fall in the general price level. It is quite rare amongst Western Economies. The last serious period of deflation was during the Great Depression of the 1930s (though Japan experienced deflation during 90s and 00s).
Deflation usually occurs because of a serious economic slowdown. If the present slowdown in economic growth turned into a major recession, deflation could become a real possibility. Deflation could occur because of:
- Falling house prices reducing spending
- Falling value of shares
- Contraction in investment caused by banks being unwilling or unable to lend.
- Falling economic growth causing firms to try cut prices and possibly wages.
However, at the moment, deflation is unlikely. We have cost push inflation and economic activity would need a very large decline before deflation becomes likely.
Could US experience Hyperinflation?
Again this is very unlikely. Although inflation is currently high, this is likely to drop in the coming months due to falling oil prices and a slowing economy.
Hyperinflation could only be a problem if National debt got out of control and the government started to print money. I examined the likelyhood of this occuring in - US Dollar Collapse?