Biflation is the state of an economy where the processes of inflation and deflation occur simultaneously. During this period there is a rise in the purchasing prices of commodity items and a fall in the purchasing prices of non-commodity items.
The purchasing price of an item is based on the demand for it and the amount of money in circulation to pay for it.
Biflation is preceded by an overabundance of money placed in circulation within the population by a central bank. Since commodities (such as food, energy, clothing) are essential and are in high demand, the purchase price for them rises due to the increased money available to buy them. This increasing purchase amount is price inflation.
One reason is liquidity flees to the safest and most liquid assets. This causes the money supply at upper levels of the pyramid to shrink while the money supply at lower levels of the pyramid expands. This causes deflation as the money supply evaporates away.
Likewise, biflation is preceded by a decrease in employment within the population. Although there is an increase of money in circulation, fewer people have access to the money to make purchases. As a result, a greater percentage of individual wages is directed toward purchasing commodities and less is utilized for purchasing non-commodity items. Since debt-based assets (such as automobiles, televisions, stocks) are less essential and are in lower demand, the purchase price for them falls due to the decreased money available to buy them. This decreased purchase amount is price deflation.
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That’s just dumb. Deflation and Inflation mean what Michael Shedlock says, not what CNN says. Confusion over the definition of terms is what gets you words like this.
Of COURSE not every area of the economy is going to fall on its face at once, otherwise there would be chaos, mass confusion, dogs and cats living together, etc. Do we really need a new word for what should be common sense?
Mish’s definition of deflation has been somewhat simplistic. There are a couple of definitions:
* Deflation of the money supply/credit supply.
* Deflation of commodity prices
* Deflation of asset prices (stocks, bonds, real estate, etc.)
One of his recent posts finally acknowledges the first definition. I like Mish, but his macroeconomic outlook is a bit weak.
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