The price of regular gas in this community is now 232.9 per litre, a new high on its way to $4, I expect. The price of crude eventually will come down, at least relative to other commodities and services, although maybe not in nominal dollar terms if inflation is not curbed. The price of fuel can only rise to the point where the economy is crippled and demand is curtailed. It may well be that many other prices will fall then too. With everyone speaking about inflation, it should be no surprise if deflation is this economy’s destiny. As credit contracts, due to decreasing demand, inflation may exhale its last breath sooner than we think. Of course, central banks could lose their nerve and open the floodgates again, but one might wonder if it would reignite price inflation once a deflation has become the expectation. I am reminded of Herbert Hoover, whose large budgetary deficits failed to reverse the deflation of his day.
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