Risky to gauge prices...

Most of the times the economists are seen debating and prescribing demand, supply, price-level and unemployment adjustments or sides in order to achieve the potential growth rate decided by the rate of growth of population, but during the past few decades the population growth rate of the  world has gone down, despite increase in the average life expectancy, which has also reduced the growth rate many economies and has put the onus of creating employment and demand and growth on the export sector of the economy in a world where the policymakers have favoured the Capitalists by cutting the domestic real wages, interest rate and real exchange rate with inflation to achieve full employment and full growth, but they forget that inflation reduces demand and spending because purchasing power goes down, it also reduces savings  and investment, because people would save less and the economy would invest less, and lower exchange rate or depreciation would increase only export demand, but could reduce domestic demand and imports, which reduces both domestic demand due to lower real wages and foreign demand due to less employment and wages and incomes. The lower demand and employment in the trading partners economy would also reduce export demand to a degree therefore the only gain from inflation, external devaluation and depreciation is exports, but the economists misses that in the long-run inflation and a lower value of money would aggravate the problem of low population growth rate and demand and growth of all the countries. Ricardo’s theory of subsistence wages using Malthus assumes that higher wages could lead to higher population growth rate and higher labour supply and wages would again fall to minimum wages. But, as has been observed, population rate of growth has gone down and using the same line of thought we could derive that wages could bounce back from the minimum wages. In other words, wages should increase as a result of lower population growth, but it has not… which could be attributed to lower real wages around the world despite increase in nominal minimum wages only because of higher inflation. Nonetheless, as have already been noticed before inflation is the second best strategy to increase demand, supply and growth, which actually adversely affects demand and growth, because middle and lower classes have a higher propensity consume than the richer and higher classes who have a higher propensity to save, they (poor) spend more than the rich also because they constitute a larger number. However, lower inflation or little deflation is also important for lower borrowing cost and increase supply which might further lower price level and price level expectations which have just the opposite effect on the real wages, real interest rate and real exchange and demand and supply and price level and unemployment. A lower price level and price level expectations and higher real wage and real wage expectations are likely to increase both consumption and savings which might also lower interest rate and interest rate expectations and increase in the real exchange rate and exchange rate expectations could also increase both imports, since real wages would increase, and exports too because of lower price-level and borrowing cost and increase in the real exchange rate. So far, the economists have assumed inflation and inflation expectations as a result of expansion of money and growth which could be right after full employment, but before full employment we might assume the price level to go down and a result of more money or money-supply and lower borrowing cost because supply or production could increase which could only be constrained by full employment, but international trade may also help to keep prices lower and increase real wages, real interest rate and real exchange rate. The technological innovation may further help save labour and increase supply and lower the price level, and increase real wages, real…real…… which could help increase supply, demand and growth and achieve full employment… Notwithstanding, if the economists and policy makers try to stabilize the price level at or around full employment that would also help stabilize real wages, real interest rate and real exchange rate and expectations which might end the demand-supply debate, for the time, and might help maximize or achieve potential growth but might be with lag. Differently, if we could target a constant price level and price level expectations at full employment by a constant money supply we could still have both demand and supply adjustments and a higher growth rate but with time lag. However, improvement in technology and innovation could further increase productivity of labour and capital leading to lower prices to increase real wages and demand, real interest rate and savings and investment and supply and real exchange and exports/imports and growth in the long-run in the event of lower population growth…..  

      

The economists often claim that deflation expectation, and not deflation, is the main problem because people would delay purchases and spending in expectation of lower prices in the future, but price level remains same in the short run to medium term and only changes in the long-run, more than a year, however some prices might be more volatile than others because of faster changes in demand and supply, like food and fuel, which mostly hurt real wages and incomes and are consumed by all. Moreover, it is very difficult to exactly predict price changes, and even more for the general public. However, investors might try to make profit of price and price change expectations, but even they could not rightly predict prices 100% and there might remain glitches even for the central banks. Notwithstanding, it could also be attributed to information asymmetry and difference in methodology, mainly investors and the central banks, but the general public is often not interested in future level of prices a year ahead, public is often short sighted, and even unable, to predict or forecast the future economic variables like prices right in the long-run, they only take in to account the current inflation and think that prices would also rise in the future, but how much exactly they do not know and in some cases the may guess… The whole stock market is a game of predicting the right prices, low buy and high sell, which is risky, amid all the information… People could not delay purchases or spending more than one-or-two weeks, if they have employment and money, because it is difficult to forecast prices beyond and lower prices would also restrict some of the supply, which could change price expectations from deflation to inflation and that might increase supply and lower or stabilize the price and price expectations. We have lower price level and price level expectations upto full employment and higher price and price expectations after full employment, however the purpose is to stabilize or constant the price level and price level expectations at full employment….