Home > Inflation, Supply & Demand > Prospect of low inflationary pressures

Prospect of low inflationary pressures

supply demandBrian Gaynor in the NZ Herald recently stated why there could be a sustained period of low inflation. He came up with the following reasons. You will notice that most refer to the supply curve shifting to the right. The last one relates to a reduction in demand.

• Labour-saving technologies have reduced costs.
• Union militancy has dissipated, particularly as far as wage increases are concerned.
• There has been a massive increase in the production of goods and services and this has led to some oversupply.
• More competitive marketplaces have made it difficult for suppliers to raise prices.
• The mass production of cheap consumer goods in China and other Asian countries has kept a lid on prices.
• Technological advances have seen the price of some products, particularly telecommunications and electronics, drop sharply.
• A significant reduction in import duties and tariffs has created more import competition and put pressure on high-cost domestic producers.
• Strong currencies, particularly the New Zealand and Australian dollars, have also helped put downwards pressure on prices.
• Better price discovery, mainly through the internet, has enabled consumers to identify the cheapest products.
• High house prices in New Zealand have meant that a high percentage of income is committed to meeting interest payments instead of being available for consumption.

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