A 99-Cent Hamburger Isn't Deflation

Keeping an open mind on the likelihood of deflation isn't easy right now. The media are ready to supply a steady diet of deflationary gurus predicting Dow 3600. Rather than be stampeded into panic or blindly ignore the deflationary scenario completely, try to evaluate the evidence as evenhandedly as you can.

The Bottom Line

As for the three industries outlined above, I see mixed outcomes ahead. Clearly the auto industry is in for a long period of falling prices because of excess global supply, and that trend will put the pinch on U.S. auto producers. But that doesn't strike me as evidence of deflation across the entire economy any more than the decline of the U.S. steel industry did in the 1960s and 1970s. Products and industries mature, and falling prices almost always come from that.

Similarly, I don't think McDonald's and Burger King prove there is some general decline in the price of restaurant food. Demographics seem to have simply moved the market away from these companies, and the companies haven't responded particularly well.

The one example that does suggest the possibility for long-term deflation is that of Xilinx (and many other technology companies). That possibility hinges on the rise of China as a world-class manufacturing base. My colleagues at CNBC are doing a series on China all this week. In my contribution to that series on Business Center tonight, I'll be taking a look at "Deflation: Made in China."