Most economists and media are concerned about inflation. For example, a new McKinsey & Co study offers up inflation as a fresh concern. And the media talks quite a lot about the printing of money in Washington – and how that could easily lead to inflation. In my opinion, although I can see inflation in certain commodity pricing (especially while China spends heavily on infrastructure etc), deflation is the bigger concern. In essence, I agree with Chris Varvares, President of Macroeconomic Advisors who said, “The consensus forecasts from both the National Association of Business Economists and the Blue Chip Economic Indicators expect inflation to be below 2% in both 2010 and 2011. At this point, there’s a greater risk of deflation than there is of 10% inflation.”
Why? There is massive debt and deleveraging that is still required to get back to a normal environment. Banks are not lending like they used to (please note that I do not support the old policies). Baby boomers are beginning to retire and spend less than when they were in full family mode. So, how will inflation occur (prices increase) without increased demand (and increased consumers)?
With that said, unfortunately, I wouldn’t doubt that there will be bouts of inflation mixed in with deflation, although deflation will have the upper hand.
So, why does it matter? Because it is vital to be prepared for what’s coming in the future. Those businesses who are prepared and ready to leverage opportunities will be those who succeed during this “new normal” timeframe. I wrote an article for Industry Week on how to thrive in the “new normal”. The keys are as follows: 1) Manage cash with vigor (which directly ties to the inflation/ deflation debate). 2) Stand out in the crowd with service. 3) Execute, execute, and execute.