Business Standard

Savers and spenders

A V Rajwade  |  New Delhi 

 As the financial media continue to speculate about the possibility of deflation in the OECD countries, one interesting feature is emerging.

 The country already in the throes of deflation is of course Japan, where consumer prices have dropped 7 per cent since 1995, or roughly 1 per cent per annum.

 The next candidate for a general price fall seems to be Germany where inflation is at 0.7 per cent and is likely to fall further. The economy least likely among the big three to experience deflation, by common consent, seems to be the United States.

 It is interesting that Japan and Germany, in that order, are famously frugal and their savings get reflected in their traditional surpluses on the current account; in contrast, the US is notoriously spendthrift with a deficit on current account fairly close to 5 per cent of GDP in the current year.

 Clearly, spenders have an edge over savers in avoiding deflation! In a way, deflation is

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Savers and spenders

Spendthrifts have an edge over those who save in avoiding deflation  As the financial media continue to speculate about the possibility of deflation in the OECD countries, one interesting feature is emerging.

 The country already in the throes of deflation is of course Japan, where consumer prices have dropped 7 per cent since 1995, or roughly 1 per cent per annum.

 The next candidate for a general price fall seems to be Germany where inflation is at 0.7 per cent and is likely to fall further. The economy least likely among the big three to experience deflation, by common consent, seems to be the United States.

 It is interesting that Japan and Germany, in that order, are famously frugal and their savings get reflected in their traditional surpluses on the current account; in contrast, the US is notoriously spendthrift with a deficit on current account fairly close to 5 per cent of GDP in the current year.

 Clearly, spenders have an edge over savers in avoiding deflation! In a way, deflation is
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