Monday, May 23, 2022

How To Handle Deflation: 5 Simple Strategies To Deal With A Sluggish Economy

What Deflation Means For Your Business

In this day and age, people look to the world of retail, shopping and buying very differently than the generation prior. The majority of consumers live and shop with their digital devices at the tips of their fingers, with vast advancement in technology that makes the ability to buy or sell goods on any mobile device possible. The greatest challenge facing retailers of all kinds and sizes is trying to determine how to cater to this new consumer base, and how to make their offerings accessible to a variety of customers, all of whom are looking for the best price on everything from watches to services to restaurants.

The Slowdown in Spending

For two years the country has been in a deep recession and a sluggish recovery. In the first quarter of 2009, GDP was actually down .2 percent compared to the previous quarter, and 2.3 percent lower than the same quarter a year earlier. What’s more, 1.6 million more Americans fell into the red in 2008 than in 2007. This is in stark contrast to the prosperous times before the financial crisis that began in 2007. At the height of the bubble in the United States, consumer spending accounted for 70 percent of the economic growth. This was accompanied by the largest one year drop in GDP since the Great Depression. Much of the debt overhang from the housing bubble and its collapse is the cause of this slump.

Valuing Items

Valuing items in the current environment is more complex than usual because not only are you dealing with the shock of sharp declines, you’re also dealing with the confusing impact of having to use inflation-adjusted models. While long-term bond rates are rising rapidly, the “real” bond market is relatively stable. The Fed’s policies have effectively created a “real” bond bubble. Valuing short-term Treasuries is based on inflation expectations. Buying short-term Treasuries on the assumption that the inflation rate will be below the Fed’s goal of 2% is arguably more dangerous than holding bonds at the historically low yields they are currently yielding.

Lower Prices

While cheaper products are a great motivator for many consumers, these days it is not only good price but also good quality that matters.

If a manufacturer or retailer lowers its prices, the loss is going to be made up with better quality and product positioning. To do that, manufacturers must offer good product positioning. They must rebrand or reposition the product to ensure that it resonates well with the needs and wants of the market.

Consumers should trust that their manufacturer has managed their prices to make sure that they don’t go too low or too high. Going too low means that the product can no longer compete and go too high means that the manufacturer risks going out of business.

What You Can Do to Prepare for Deflation

You may have heard some people say that the US economy is starting to go into recession. With many forecasters claiming that we are approaching a double-dip recession, it is important for people to be prepared. One of the things that could help ensure that you don’t miss out on the opportunity to make money is to invest in the stock market.

That is because the stock market is widely regarded as the best way to make money when the economy is struggling. There are plenty of examples where this has happened. We will look at just one of them in today’s article.

5 Strategies To Deal With Deflation

Stock market investors are perplexed: Are things looking up or down? Are we in an economic recovery or a recession? Are we in a bear market or a correction? All of these things are occurring simultaneously. As a chartist, it is tempting to make a call and take a position. But a better approach is to use a strategy that should provide a steady income stream with little fluctuation in price.

Deflation is a contraction in the demand for goods and services, usually associated with an economic decline. The longer a deflation lasts, the worse it gets. So although many investors are fixated on the rise in the stock market, we should be equally concerned about falling commodities prices. The situation is even more complicated than it looks on a simple chart.

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