Tuesday, August 4, 2015

Inflation or deflation

Deflation is worse for companies. When they projected the profit of a product selling for $10 as an example, if they can sell it for $9 due to deflation, the profit would be decreased. It would lead to laying off workers and the EPS would be decreased.

The government's job is to ensure inflation and deflation fluctuate in an acceptable range. For them, a small inflation is desirable. For another example, if your stock has appreciated 100% but actually it is flat after inflation, you still have to pay taxes for your 'gain'. It is good for the lenders to pay back the loan with money with less purchase power.

We have an interesting time since 2008: Some sectors (such as food, insurance...) are inflated and some (oil and most related to housing) are deflated

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