Friday, April 6, 2007

More signs of deflation?

In Canada a Flood of used cars pours in from U.S.

"Mr. Pauls said he sold a handful of Pontiac Grand Am and Oldsmobile Alero cars before Christmas for between $12,900 and $14,100. That's half of their manufacturer's suggested retail price. All the cars were one year old."

"I'm still up to the rafters in inventory," he said yesterday. "I'm over-filled. Unless I've got a vehicle sold, I am still not buying anything."

"Used-vehicle prices are a key leading indicator of overall vehicle demand and also a good proxy for the health of the overall economy, according to Bank of Nova Scotia. And their accelerated drop in recent months signals potential pain ahead -- not only for the economy as consumers become more cautious, but also for the environmental initiatives being trumpeted by governments."

I've asked the question before, if US domestic spending slows, who will buy the products currently being produced at the still optimistically high levels?

With a temporary glut of goods on the market there will be at the least temporary deflationary pressure which could ad to other downward price pressures prolonging the ‘temporary’ deflation effect still further.

Ad in to this mix lower housing costs, along with dropping prices of electronics and other non-essential consumer items and you can expect that a deflationary event of unknown duration will set in if it hasn’t already arrived.

As more of us see prices of these goods drop, the psychology will shift to why buy now when I can get it cheaper tomorrow? Further exacerbating the downward cycle.

I for one am not buying anything at the moment. I suspect I’m not alone.


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