He shouldhave said that for prices to fall... we need a negative inflation rate ( A ressesion. the car stops moving forward and starts to go in reverse). As long as inflation rate is possitive, prices will be rising. That core point was missed by him. However, on balance...he is usually spot on.
@Lahiru_Ranaweera Жыл бұрын
You are correct that as long as the inflation rate is positive, prices go up. But a negative inflation rate is called as a DEFLATION, NOT a RECESSION. It is analogous to a deceleration (මන්දනය) of the car. The car moving backwards is analogous to negative prices. Indeed Dhananath missed the point. However he has done a good job educating Sri Lankans about economics. Keep it up.
@hirands Жыл бұрын
@@Lahiru_Ranaweera I did not say that a negative inflation is called a ressesion, that is how you understood. What the syntax means is that ressesion is the result of negative inflation. The car moving backwards is analogous to drop in prices (YoY or MoM or WoW or DoD) during a ressesion due to negative rate of inflation. There is no such thing as "negative prices" unless the market pays the consumer for consuming goods and services. Now that is a totally different ball game. Of course, Dhananath is doing a great job but he should not miss the underlying key point of his presentation. I am sure he will take this in good faith if he somehow sees this.
@Lahiru_Ranaweera Жыл бұрын
@@hirands Thanks for the reply. In the given example, the price is analogous to the velocity of the car. The inflation is analogous to the acceleration of the car. The negative inflation/deflation is analogous to the negative acceleration/deceleration of the car. For the car to start moving backwards, first it should stop (zero velocity) right? Zero velocity is analogous to the price being zero because the price is analogous to the velocity. Then moving backwards means that the velocity is negative so as the price. You are correct that the negative prices means that the market pays the consumer for consuming. Such instances DO exist. eg: negative interest rates, oil futures went negative. I don't agree with your opinion that the recession is the result of the negative inflation/deflation. It is a common myth among mainstream economists. It is difficult to explain here.
@hirands Жыл бұрын
@@Lahiru_Ranaweera I respect your opinion and I am not an economics, mainstream or otherwise. Recession, by definition is nothing but reduced economic activity, falling GDP, fast falling demand for goods and services etc etc. The most common cause for a recession is deflation (negative inflation). There are more than enough tutotials explaining this. Just like in physics, the only way to counter act an action is to create an opposite reaction. One of the best solutions to curb runaway inflation is to induce a controlled recession by tightening monetary policy, even while ignoring the considerable collateral damage to weaker sections of the economy. It is just like a medically induced coma on a patient with a brain swollen by over stimulation.
We were experiencing cost push inflation. There for price of the good and services won’t reduced until the businesses cost get some sort of reduction. And some steep competition would also help reducing price levels.