Rational Expectations and Prices and Spending...

 Complete price stability is a myth, the economy moves between high and lows based on the demand and supply or between high and low demand and high and low supply... Low prices and full employment mean there would be higher demand and price expectations and higher prices and full employment mean there would be higher supply and lower price expectations... 

Unemployment and lower demand/high supply and lower prices mean slowdown and unemployment and high demand /low supply and higher prices mean high growth... The economy moves between high prices and high growth and low prices and low growth... 

Base effect ie lower prices and growth means there would be higher demand and price and growth expectations and the same with debase effect ie there would be a correction or lower demand and prices and growth expectations... which seem rational expectations... The economy moves between high demand and high supply and between higher spending and lower spending... 

Lower prices mean there would be more spending and higher prices mean less spending... Both consumption and investment decisions depend upon price and price expectations... Lower prices mean there would be more spending and higher prices mean there would be less spending ahead even if there is full employment and fixed income... 

Intervention could reinforce volatility, for example, lower borrowing cost could reinforce lower prices and higher borrowing cost higher prices... Therefore, we need stability in the borrowing cost...

Inflation would increase after full employment...Unemployment and lower borrowing cost would mean that there is space for expansion means higher demand and supply... When both would increase equally prices may remain stable, though if demand is higher prices may increase, but not that much and in supply case prices may go down, the market move between excess demand and supply...

The govt may educate the masses how to take advantage of price expectations and corrections in the G&S/inventories market... If they expect 1-2% profit/day they may increase investment demand as this could double investment in 100 days, for this they must wait for price corrections and increase supply when prices increase...

The govt and RBI must instill business acumen in the public and how to handle inflation and make profits... The RBI has allowed 2-6% inflation which could help grow money returns if investment is made wisely, at corrections... 

Like the stock market, the broader economy and the inventories market could also be made profitable where prices could move from 2% to 6% and from 6% to 2% it could be a buying oppourtunity and increase supply when the price increases... If people buy when prices are low and sell when prices are high it would also help stabilise the economy...

Disinvestment is often regarded as selling family silver, though the meaning in current perspective is to raise capital in the market for more investment... Today only a part of the promoters’ stake or shares are sold to the investors... Disinvestment in today’s context is a lot different than used to be in the past... It means more money would be raised through sale of the companies’ shares for investment...

This time there is a change in the commentary that Das has expressed concerns of inflation expectations instead of lower inflation due to low demand... Inflation expectations mean that he sees revival in demand and growth which could further increase demand and spending... The central bank has projected a growth rate of 10.5% in 2021-22...

Fixed interest rate income assets does not benefit from volatility... For this investment in the short run gov secs is rewarding since they capture the loss in real interest rate due to inflation when the central banks increase the nominal interest rate to control inflation and restore the value of money, in the short run... Instead of bank deposits savers may park their money in g-secs and benefit from volatility...

It is quite a coincidence that INDIA's foreign exchange also stands $500 billion which is a major reserve with the central bank lying unused and idle... if invested in the economy could prove to be a major source of investment and higher productivity and demand and growth... If sold in the market vis-a-vis Rupee could make it strong which could attract inflows... Investment reinforces Investment ie multiplier...

The ratings are used to mobilise savings and investments on a very large basis which include FIIs, FPIs, both, debt and stocks, every country now want more foreign exchange for maintaining a stable exchange rate regime... Rating Agencies are at investors’ service... 

But, the 2008 Crisis exposed the vulnerability of the investment banks even after good ratings... INDIA has been the fastest growing major economy with stable inflation, notwithstanding its rating has been the lowest investment grade...

Prices and Growth (Rate)....

 Growth comes from either accelerator and or multiplier, when consumption increases first and, later, investment and more employment and demand and further consumption it is the accelerator and when investment increases and it further increases consumption and further investment... 

Investment reinforces or induces investment ie multiplier and consumption reinforces or induces consumption ie accelerator... 

Lower prices increase demand, other things remain constant, lower prices increase the value of money and consumption and demand and price expectations and higher prices decrease the value of money and increase and investment and supply and price expectations... 

Lower price expectations again reinforce lower prices and vice versa... Because what people expect too much becomes a reality if the expectations are rational... a rational expectation is a common belief... about prices and consumption and investment or demand and supply...

If the rational expectation is that price would fall they would hold spending and increase supply which could reinforce lower prices and it they expect higher prices they would increase demand and spending and hold supply which could further increase prices...

In the West productivity has increased, especially labour, but real wages has been as low as back in 1970s, that has put a lid on demand, though supply has increased... Higher money supply and low borrowing cost in the past decades have kept inflation low...

 Depreciation, lower wages, interest rate and exchange rate have increased demand of exports at the cost of domestic demand, though supply side and imports have strengthened that shows weak Phillips curve relationship between inflation and unemployment ie inflation would increase after full employment... 

Nevertheless, lower wages and interest rate have increased the productivity of labour and capital and supply.., but not their product, wages and interest rate which have depressed demand and increased supply and is reinforcing lower consumption and investment and lower prices... Higher real wages and interest rate expectations could increase spending, both consumption and investment, and prices and growth... 

Typically, low growth is marked by low prices and vice versa... The objective is price stability at full employment and growth... If prices at the full employment are stable, neither inflation nor deflation we must cheer the stability... In the West supply side has improved alot tokeep prices stable at full employment... Stability would help to keep up investment…

Lower inflation or a strong domestic exchange rate and a strong foreign exchange rate or appreciation lower import cost/prices could also increase export competitiveness... Lower inflation means a strong currency and cheaper exports, too...

Today money's value is tied to nothing and the central bank prints currency while maintaining inflation targets; it is not tied to gold or anything... These are investment goods with a value in currency terms or exchange value, these bitcoins and the major Tesla viewed by investors as profitable ventures, there is nothing like bubbles if it is backed by earnings growth... if inflation is low and stable... Many central banks have allowed bitcoin exchange and in the stock market...

INDIA direct taxes are highest among peers... To increase real wages and incomes the GOI may reduce incomes tax that would also increase competitiveness and demand, when there is limited transmission of lower cost to prices, like lower interest rate transmission by banks and higher prices in the real estate...

Budget may try to build dams to stop floods (and generate electricity, too) and improve irrigation facilities to control seasonal food inflation and help stabilise the interest rate regime which could increase productivity and competitiveness and demand...

Farming is the oldest form business... Most of the growth models in economics are based on agriculture... By selling lower to achieve economies of scale big farmers are hurting small and marginal farmers, it is the basic strategy in any market to gain the market share, lower prices and larger pie of the market... Look at oil producing countries... 

Indeed big subsidies have lowered cost and the farmers are selling even lower than the actual cost... especially the small ones...

Due diligence must be given to the fact that the growth has not been negative; it is negative only when compared to the last quarter or last year... For example, if the last quarter or year growth rate was 7%, a - 24% lower growth rate would be -24%/7% equals 3.4%... 

The growth rate is positive but lower compared to the last quarter and year... Higher inflation expectations from a lower base would help maintain spending or due to lower prices which could reinforce demand and prices... Every paisa spent anywhere would further increase income and demand and spending...

GDP Constant Prices in India increased to 33141.67 INR Billion in the third quarter of 2020 from 26895.56 INR Billion in the second quarter of 2020. Source: Ministry of Statistics and Programme Implementation..

Recovery from the Pandemic and the Farmers share in value...

The RBI has loads of dollars, foreign exchange reserve which could be used to capitalise banks... Strong rupee could increase foreign capital inflows and cheaper imports and domestic inflation also due to lower oil prices... Lower prices increase competitiveness and demand in the economy and exports... which could help maintain stable interest rate...   

 

During covid it is important to maintain some inflation to keep up demand and spending and help increase supply...

 

Farmers need share in value addition at every stage from raw materials to intermediate to finished product and in bidding and auction too, till it reaches the consumer... It would be profitable that Famers decide prices on the basis of cost...

 

Why the government decides the prices of grains...? The Farmers must be provided the capacity to hold and slowly sell on price rises... Small and marginal Farmers should be benefited by the market system and be able to sell directly to the urban retailers at very low cost...

 

The FDI in multi brand retail was allowed only to increase procurement by the large companies directly with mandated local sourcing... The transport cost must be low...

 

Short run is more predictable than the counter view that long run is more certain therefore the long run premium is higher than the short run, which is wrong... We could tell what could happen in a month or three on the basis of data, but difficult to tell what could happen in the next 5 or 10 years...

 

 Stock Market investors shall give little importance to day to day news and stick to the longrun story and invest more at corrections... Analysts say that investors need to follow the stock specific cycle and not the market cycle which could affect the stock market cycle too, especially the index stocks...

 

People wrongly believe that they shall buy when they expect that the market would go up, but contrary to it when they buy the market increases, though if they hold and wait for lower prices it would increase supply and lower prices... Investors shall try to gauge the majority rational expectations... which might turn a reality... Rational expectations are very important for investment decisions...

 

Correction means more investment... Lower prices increase demand and price expectations...  Guv Das view is for short term investors, there could be an imminent correction... From a 2 to 5 year perspective the outlook is good... The RBI too lower interest rate to increase demand...

 

The stock market is always suspected for bubble coz it runs on liquidity by the central bank, higher liquidity means higher stock price valuations therefore the market has responded sharply V shaped recoup with the liquidity support ahead of the broader economy and the RBI still in accommodative mode... Nonetheless, the market cap to gdp ratio is low compared the revival saw after the 2008 crisis...

 

Higher inflation due to supplyside disruption has helped increase margins and earnings of the companies... Higher inflation means higher margins and earnings... which have also pushed the stock market high... As long as the central bank maintains an accommodative stance the party at the Dalal Street might continue...

 

Lower prices in the stock market increased investment demand (after the Mar correction) while higher prices in the broader economy due to supply disruption and lockdown which hit the consumers demand, too... Higher unemployment has again hit the consumption story... Unless prices in the broader economy correct a little bit due to lower cost and higher productivity and supply and higher income, consumption demand may remain low...

 

Since more people than a million are adding to the labourforce every month then how can production remain low with more consumption and investment demand and spending and stable and accommodative monetary policy... 2021-22 would be more prosperous than 2020-21....

 

Modiji's attempts to curb corruption have been failed manytimes like to reduce back money in the economy that has skewed the inequality through demonetisation, but it turned out to be a bigger scandal by banks... Without sweeping reforms to cut down on corruption all would go down the drain which would further increase inequality and abuse of power and position...

 

Economists may give hope to the investors to keep investing in the economy that might help... The stock market investors and even FPIs are an important source of growth and must be saved; now not only rich, but many more people invest in the stocks...

 

Recently, BofA said that credit growth is bottoming out but growth could remain weak… Nonetheless, if the credit growth is bottoming out the growth would follow... If business or investors buy or demand or spend when prices and cost are low and sell or supply when prices are high they would gain and that would also help achieve stable prices and full employment... 

Price Transmission, Economic Policy and the Three Farm Laws...

The govt may tweak income tax rate to increase demand of the salaried class and the middle class as it has been pending since a long back at par with the indirect taxes and the corporate tax cut rationalisations of the tax structure... Corporate are not passing cost gain and lower prices to the consumers.. Banks and the govt (oil prices), too... 

Though, inflation and lower debt may increase demand, but disinflation may increase the value of money, too, and demand... Both, low prices and higher price expectations increase demand and spending, but high prices and lower price expectations may delay demand and spending and growth and expectations, increasing money supply would further increase demand by increasing the real incomes and returns on money... 

Higher income, after tax, may increase demand and spending by the consumers while investors would increase investment in the sight of higher demand which would increase price expectations and spending and growth... When both demand and supply would increase prices and lower unemployment and would increase growth upto full employment...

Refinancing and restructuring of the NPAs due to interest cost and recession could help the investors... Refinancing at current rates (floating rates) could save a few of the bad debt due to low demand and higher cost... The RBI might control business by providing forward guidance about prices using the interest rate mechanism... 

The inflation target band is more important than the average target, prices move between highs and lows and also due to change in price expectations... High prices and expectations signal high demand and higher interest rate and lower supply and further higher prices and vice versa based on the monetary policy actions... 

If prices remain stable in the band it means expectations are stable between 2-6%... Below 2% its a case of cut and above 6% means its a case for hike, though the RBI has tolerated higher inflation during covid... The investors could take advantage of the monetary policy forward guidance to take investment decisions since inflation and inflation expectations and interest rate and expectations are stable... The inflation has barely crossed the upper and lower limit since the inflation targeting has been adopted...

Hike could signal hold on investment and increase supply and cut to signal demand and expansion... lower prices mean more demand and higher price expectations and higher prices mean more supply and lower price expectations... Lower prices mean it’s time to demand and invest more which would also stabilise the prices and higher prices mean it time to increase supply... Business expectations reinforce prices... 

The stock markets market-cap to GDP ratio is still low compared to the recovery (in the stocks) seen after the 2008 recession stimulus... The stock prices might be expensive, but not from the time perspective... The stock market might be at all time high, but stock prices have been in the correction mode at many occasions since 2013... 

Though the stock market is reaching late at 47, 000 which might be achieved earlier without heavy corrections... The stock markets still have much space (potential) to go up... The markets may try to catch up pace to level the loss in the midcap and small caps stock prices since 2017... Large caps still could be safe heavens... they have just recovered from the March 2020 correct and could scale new heights...

Strong rupee expectations could increase foreign capital inflows resulting in further lower interest rate and lower dollar which means more demand and investment... and, lower inflation and higher real wages... which also means higher productivity and competitiveness...

INDIA's debt market is largely underdeveloped since it lacks proper corporate bonds market so the foreign investment could flow in as a result of easing abroad like the US economy... When foreign money would pour in it would lower the interest rate and increase bond prices which would be a gain... The interest rate in the emerging markets would converge to the developed countries zero real interest rate... 

In the developed world higher money supply has resulted in lower borrowing cost and prices and higher supply which has lowered prices or inflation... Bonds do well during lowdown when the interest rate are lower due to higher money supply and higher bond prices which have a negative relationship with inflation and prices in the broader economy...

The three farm laws are scrapped in the hindsight to increase farmers' bargaining power when there are more avenues to sell the produce, more players in the market with competitive rates, even exports... APMC has been replaced to cut the cost of the middle man and mandi's are not equipped to reduce wastage and storage cost which ultimately affect inflation which profit mandis and not the farmers... 

Even more the concept of MSP is flawed, the govt sets MSP and buys it own, what a market it is where buyers set the prices and not utility and demand/supply? What is this arrangement? Prices must be set by the farmers according to the cost... The cost for Punjab and Haryana farmers is low due to too much subsidy for water guzzling crops, though, farmers at the other locations, having less than two acres need Maximum Prices, why they would sell at minimum prices...? 

The farmers must consult poor farmers at other locations, before demanding removal of farm laws... they must win their support that they would sell at min prices or max prices... Contract farming would further increase demand and prices and investment in crops in demand...

We need more investment in the aggregation of the farm sector... We actually need an aggregator of aggregators....

Some question…Why the govt is forcing the farmers in to uncharted waters when nobody knows about market or frankly speaking in the stock market of grains... all could lose... Nobody can know the markets...A stock market is a risky place to be with without the regulation…

Modi lost several rural seats even in Gujarat also alongwith many states though he dedicated few past budgets to rural and agri sector to gain the lost ground when the Congress has good hold in rural areas due to MGNREGS... He is trying to appease rural areas by allocating higher funds for the rural guarantee scheme playing the old vote bank politics...

 Modi's actions are timid and half hearted to move to a market system while his government is reiterating that mandis and msp would continue... The govt is trying to stop the farmers stir somehow... but farmers are unwilling to go back in case of unclear govt intentions... In a market system the farmers could still be losers because they lack knowledge of economics and business and big players could still play spoilsport at the cost of small and marginal farmers... 

Poor farmers would lose and would be pushed to sell low in absence of any price forecasting models... Rich would have both money and grain to withstand low prices, but not small farmers..... This year too a lot of funds would go a longway to satisfy the peasants and farms, an unproductive sector like a black hole, no amount of money can satisfy poor and small farmers who actually need education and skills to grow and develop...

What people expect and how do they behave could turn it into a reality, if people have money and they expect higher price expectations they would increase demand and hold supply that would further feed into the the price channel or increase prices, but if they expect lower price expectations they would hold demand and spending which would also increase supply that would again lower prices... 

Farmers' Discontent and Monetary Policy and Models to Follow...

Farmers need maximum support prices... They would gain when people would compete to buy the produce, they would bid the produce prices high, otherwise the govt would buy at MSP... The govt has not bought enough through the Mandi's due to record production in the past few years and lower price expectations...

Why govt shall buy? It has no money... it only plays a middle man role increasing the cost of supply...

Oversupply of labor has reduced the share per labour in agriculture... we need skills to provide jobs to excess labor and use technology to increase productivity and wage per person... middle man chain has further depressed wages... Rural population is too much dependent on agriculture for occupation...

RBI rate cut end points that the rate cut cycle has almost bottomed out, this is the lowest since 2013 and the RBI has underscored an accommodative stand even when inflation is supply side driven, therefore rate cut is not in sight for atleast a quarter and rate cut only when the inflation pips low... 

Materially there would be only a minor difference, high inflation means higher nominal interest rate and lower inflation means lower nominal interest rate, when both mean a stable real interest rate, but changes in nominal interest rate reinforce inflation/disinflation/deflation. 

Lower inflation means lower interest rate and more supply and demand due to lower prices, only if there is unemployment in the economy, full employment would constrain demand and supply and higher inflation means higher interest rate and lower supply and demand and higher prices and higher unemployment... 

Low and stable prices and interest rate or real interest rate and full employment would help achieve the potential growth rate... Lower prices mean higher supply and demand and higher prices mean lower supply and demand...

The RBI may abandon the inflation target since it (inflation) is supply side driven, higher prices could increase supply and contain prices through the market... Demand is low and accommodative monetary policy could increase demand and price expectations and spending... The RBI has already tolerated higher inflation during covid induced recession... Higher inflation expectations are good for spending...

Maintaining inflation expectations is important for spending decisions, both consumption and investment... Higher price expectations from a low base seem a rational one... Higher prices also mean higher demand and supply...

We have two models to choose from US and China... US' strong currency model or internal devaluation model which means cheaper imports and higher competitiveness and exports and China's cheap currency model or external devaluation model which means cheaper currency and cheaper exports or expensive imports... We gain from both... Though, Chinese model restrict some imports/domestic demand, the US models increases domestic demand...

Inflation Management, Even During Low Demand and Gradual Unlock...

The RBI needs to bring the market rates down, the psbs and the private commercial banks, they are not lowering the borrowing cost, but inflation has cut the real interest rate close to zero to negative which is the right time to increase spending, any attempt to lower inflation by rate hikes would reinforce inflation (and expectations) by restricting supply, since INDIA is supply constrained and demand is already low and could increase unemployment...

 

If it cuts rate of interest it would increase supply and demand by reinforcing disinflation or deflation by increasing supply and demand as long as there is unemployment in the economy, lower prices increase demand... Therefore, the RBI must commit the inflation target by lowering the borrowing cost and increasing the supply till the output gap closes with full employment...

 

The RBI may further cut as long as there is unemployment and possibility to increase supply and demand... with the natural real interest rate... Higher supply would help lower inflation and nominal or market interest rate and also increase demand....

 

Food inflation is a seasonal phenomenon, it could only be controlled through removing supplyside bottlenecks by the Government, it cannot be controlled by the higher borrowing cost by the RBI... The Govt could also lower oil prices when uncertainty and oversupply has lowered the international oil prices, somewhat...

 

Notwithstanding, if the lower prices are passed on to the consumers it would increase real wages, when food inflation and higher remuneration to the farmers, are used to control overall inflation and demand... If agricultural prices are not allowed to go up then core inflation must be brought down to increase real wages and incomes of the agricultural labourforce which accounts for a large part of the unoragnised sector and is around 60% of the total...

 

If manufactured products, oil and stocks prices are determined by demand and supply then why not the agricultural prices which could increase real wages and incomes of a large part of the population... US has subsidised the agriculture, INDIA too could help increase productivity by lowering the cost of the farmers and increase competitiveness...

 

The govt could also allow higher investment in water and irrigation (dams and reserviours) infra 'coz flood and drought add to the volatility of food prices and uncertainty for growth...

 

The underlying recognition of all the unholy alliances and allies is that no single party is able to provide a better and right substitute of the BJP and PM Modi... When all would become one it would lead to a sharp polarisation of voters, all vs BJP the probability of the BJP winning becomes 50%, other wise 1/all parties...

 

Post election alliance is a sign of thirst for winning anyhow... Congress joining the Seperatists in J&K would mean loss of its image only for the sake of win... Abolition of Article 370 is good for Kashmiris since it would increase growth and development and jobs and incomes and higher property prices and more wealth and prosperity...

 

Jean Dreze has included the training programme in MGNREGA... The govt cannot provide all the jobs on its own, it must use a mix of expenditure on the employment gaurantee scheme and training, skills and specialisation...

 

The govt may subsidise crops that are sensitive to inflation, provide da to wagers and import more, partly... and also let some price hike to help demand in the economy...

 

Additional incentive and spending about Rs 9 trillion would create employment and demand in the economy...

 

Spending on infra could help the blue collar workers who have a high propensity to consume, corporate tax cut would be saved, who have a high propensity to save, unless competitive gains and higher productivity are passed to the consumers, which could further increase real wages and incomes and demand.... Poor people are more likely to spend than their rich counterparts... spending is important during the lowdown... They also need more help...

 

If we pass on lower prices, lower corporate tax, to the consumers, banks too, lower interest rate that would increase real wages and incomes and lower cost and higher profits when money supply is increased... Majority would increase spending which could increase demand and price expectations, cheaper dollars and lower domestic exchange rate would also increase exports...

Reforms could Kickin the Economic Activity...

So far in a sense the govt has exploited the farmers by not letting agriculture prices market determined and by buying at low MSPs, it was the sole player in the market... It has bought produce on a price it wanted... Market would help determine prices by demand supply or quantity and if all farmers quote one price they would gain, poor farmers, too... Tax on the agricultural income is negligible which could prove out to be a profitable venture...

The NPAs have been a problem since the start of the NDA govt back in 2013, though the govt has recapitalised the PSBs few times in the past and also tried to lower NPAs through the Insolvency and Bankruptcy Code, but low demand and growth during slow recovery has further added to the new NPAs eversince the demonetization hit the money supply and supply chains... 

The NPAs handheld the RBI to lower the interest rate eventhough the banks were flooded with liquidity... Nevertheless, INDIA has a war chest of the dollar reserves which could be used to capitalise banks, lower dollars would help lower imported inflation and more competitive economy or the RBI could start quantitative easing to capitalise banks... The govt could also allow higher FDI limit in banks...

Spending that increases productivity and employment is quite welcome, though the govt has promised productivity linked incentive or pli to some sectors that is employment intensive and has capacity to shore up productivity and lower inflation to increase the economy's competitiveness and exports too... 

The virtuous cycle could soon kickin as investors wait the lower demand and price expectations to bottom out and increase demand and price expectations by spending more on investment and consumption, higher demand and price expectation could further increase spending and thus reinforce demand and price expectations as the lockdown fades... 

INDIA's growth rate contracted 24% in the first quarter and it is expected that in the second quarter growth rate would be 10% lower, but could soon recover at a healthy growth rate of 20% or more due to low base effect...

Infra directly add to development and growth... It offers job oppourtunity in the process of development of an area and prices like land, labour and capital by the way of construction and real estate development which is employment intensive... During 2008 Dr Rajan advised more investment in construction which led to the idea of priority sector lending which is followed by too much investment in construction and oversupply and loss which also created too much employment, demand and inflation, but of wagers which consume more food without food security and which resulted in food inflation and lower real wages and income and higher borrowing cost and the NPAs... 

MGNREA created more employment in rural areas and demand and too high food inflation without food security... Productivity increasing spending is quite welcome, it is a sign of innovation and increased competitiveness in the market... Lower prices increase competitiveness... 

But, the real estate never reduced prices to increase competitiveness which increases real balances with the public and demand... Same with banks they don't pass productivity gains and lower prices to the consumers when they are incentivised by the market, govt and RBI... Lower prices increase demand and price expectations...

Inflation is increasing more than wages which has depressed demand and growth... Inflation is a problem for everyone, those who have it and also for those who do not have it... It is also because it is in the demand model used by the economists, they expect inflation (and expectations) based on the Quantity Theory of Money as a result of the Money Supply and expansion when the truth is that as long as there is unemployment lower interest rate would reinforce lower price 'coz of increase in productivity of capital and labour and higher supply... 

The neo classical synthesis accepts that higher money supply lowers interest rate and increase supply and lowers the inflation and inflation expectations... The latter is observed in much of the developed world, overtime higher money supply and lowered the borrowing cost... The former the QTM is observed in the developing economy because of higher borrowing cost and supply side bottlenecks... Both, lower prices and higher prices and expectations play an important role in investment decisions and economic cycle... 

Lower prices increase demand and price expectation, but lower price expectations delay demand and increase supply which further reinforce lower prices, and, higher prices increase supply and delay demand, but higher price expectations increase demand and delay supply which further reinforces higher prices... Both lower prices and higher prices are followed by eachother is the economic cycle... It is profitable to invest when prices are low and sell when prices are high that would help stabilise the cycle... 

Both, little inflation and little deflation are good for consumption and investment and spending decisions... Lower prices increase real balances with the public and higher inflation increase nominal income... Lower prices increase demand and higher prices increase supply we need to balance, but at the highest which would also maximise growth and expectations...

Real bond returns depend upon bond yield and bond prices and inflation, too... Higher yield means lower bond prices which is the right time to buy bonds... Lower or cheap bond prices increase demand and bond price expectations and when people increase demand it further lowers bond yields and reinforce higher bond prices, when people buy a specific bond more money supply lower the demand for funds and reinforce lower bond yields... when the bond yields topout it increases demand... and vice versa...