Does inflation matter? If so why do we aim at 2% and not zero?

Inflation is not reducing debt, its simply transferring wealth around the economy, generally from income earners to capital holders. QE results in capital holders putting their money into fixed assets such as gold to protect its value thus there is no investment in production and the economy goes nowhere. QE solves nothing but makes the poor poorer and the rich richer but the size of the cake stays the same or even shrinks. 
Having a 2% target that’s credible avoids this, not having a credible target results in the problem we have now. Economists should not be in charge of anything, without real city experience they just work off theory which is never right.

JMK was absolutely right about inflation, I am sure they teach this in the corridors of the Treasury as one of the main tools stealthily to manage our financial affairs against an intractable backdrop of spendthrift politicians and citizens. He also said that in the long run we are all dead, a useful point for all politicians to remember… some may have a different definition of ‘long term’.

Inflation targeting is a fudge, a chunky oversimplification. The BoE and ONS are experts at the craft of inflation pretence, using overall figures, synthetic and changing baskets of goods and services and cunning weightings that hide all sorts of issues. They constantly talk about the year on year change in the rate of change, when a look at the absolute change since a reference point would be much more interesting. How about an index based on 1997 = 100. Too embarrassing? You bet!

And then as you say they come out with that corker ‘One consideration concerns the fact that interest rates cannot fall below zero’.  What can you do with them? Time to revise their website? What are the civil servants doing all day? (Sorry, they’re all off because of the Olympics.)

The BoE does seem to be lost for meaningful and effective policy options, swimming around in a mire of dud ideas and lacklustre PR statements about how things are bad. The MPC seems to contain several discredited economists, some from other countries where discredited is a huge understatement. Stealth and consistent forecast errors seem to be more typical than effectiveness. Still, mustn’t moan, at least one part of the UK financial scene is taking a longer term view, if only to use inflation to reduce debts!

the boe’s failure to target inflation and its continuous QE will come back to haunt them. In a consumer based economy below inflation payrises, high inflation and debt have stopped the consumer consuming. QE has destroyed annuities, which reduces future consumption.

Still they won’t mind with their index linked gold plated pensions.

Hello Shaun,

Seems oil prices are reaching the average again!

 2001   2002   2003   2004   2005   2006   2007   2008         2009    2010   2011   
24.46  24.99  28.84  38.26  $54.57 $65.16 $72.44 $96.94    $61.74 $79.61 $111.26
2012
$112.68

as with the trade figures you want to work with the averages and not the spot prices …

Ah yes the Creative Price Index – creative because we use the basket of items that have to lowest price increases  , meaningless really

RPI = Real Price Index – although this has been Gerry Mandered as well ….

barncactus is onto some with using a index base – but it will never happen!
too tricky – those Hoi polloi  might start cottoning on that the  Hoi Oligoi  are streets ahead ( refers to to 4.8% average pay rise  the top 5% got this year )

inflation for Capital depends on what is inflating does it?  Not house prices now and gold has tumbled a bit

it certainly eats at my meager savings – cant get better that 3.00% with an ISA.
Why do you think people are paying down debt? ( 4–7% interest there- credit cards – well !! ).

Economists – 6 economist in a ground floor basement ( none are Shaun for sure   )

How many does it take to make a Sandwich ?

Answer – none – they are expecting their demand ( hunger) to create one……
( one should never believe in invisible gods/hands – how do you know they haven’t pop’ed out for a fag? )

got to laugh haven’t you ?

Forbin

IMO the Govt having a 2% (i.e.positive) CPI is primarily intended as a benefit (increasing revenue) to them; everything else remaining equal, particularly taxation threshholds!

In the same way the Govt’s most important economy criterion is GDP, the greater the GDP the greater their revenue; if they looked longer term they would have been a lot more concerned about the Balance of Payments Deficit.

And because the Govt has taken short-sighted and selfish actions, we are now in this Mess. But then most of the electorate are similarly blighted; an electorate gets the Govt it deserves.

Great shame for the longer sighted and unselfish.

Regarding QE and inflation: In the end the QE has to go somewhere and instead of increasing the cost of everyday goods it has increased the cost of saving and investing, therefore increasing the overall cost of living well beyond the RPI.

Question – if it hasn’t already been calculated:How many hours would the ‘average’ person have to work to be reasonably self sufficient compared to previous years.  In this I include cost of everything including purchasing/renting living accommodation and also the cost of saving enough funds to have a ‘reasonable’ retirement. Plus payment of taxes for contributing to the ‘greater good’. Do you include student loans into this?  
I know that this isn’t quite the same as inflation but it is a handy yardstick.  My guess is that hours of work required has gone up significantly in the last thirty to forty years, despite working more efficiently.Also as a comment on improvement of quality being taken into account.  If ‘lower quality’ items are not available, that is still the current cost of that type of item.

Great stuff, Shaun

Dear Shaun,
Essentially, CPI was designed as a measure of macroeconomic inflationary pressure and therefore a guide to policy. It is not a measure of the cost of living but of course it suits a lot of politicians and central bankers to pretend that it is.

Zero inflation would be fine in the absence of debt but for an economic system built on personal and corporate debt it is likely to be disruptive, not least because zero inflation  implies that up to half the prices are falling so we should have a lot more bankruptcies and business failures. 

Incidentally, the ECB originally had a target of not more than 2 per cent but kept missing it so changed to “close to”. The Taylor rule, based on successful historic performance, also tacitly implies 2 per cent inflation, 2 per cent growth and therefore an equilibrium money rate of 4 per cent. Those were the days.    
  

 Hi outsideratdisgus,

“Zero inflation would be fine in the absence of debt but for an economic
system built on personal and corporate debt it is likely to be
disruptive, not least because zero inflation  implies that up to half
the prices are falling so we should have a lot more bankruptcies and
business failures. “  I can’t believe that you really meant that?  I wonder whether Shaun would agree with that premise?

 Hi Critic Al Rick,

Yes, I agree: the 2 % target is essentially a form of continuous stealth tax; it allows the government of the day to pretend that taxation is lower than it actually is, and to make up its revenue out of the continuous 2 % debasement.  As such it is a confidence trick of the highest possible order and one supported by law, whereas all other confidence tricks (except those perpetrated by bankers) are illegal.

 Hi barncactus,

good summary here.  Of course “long term” is relative to “temporary” and as Shaun has pointed out from time-to-time the BoE’s and government’s definition of “temporary” is the opposite of most people’s concept of its meaning and that defined by the OED!  I do not think we can blame the MPC too much though, except for their lack of honesty; I believe the incompetent and fatuous decisions announced by the MPC are actually being made by the Chancellor and Treasury – not by the MPC; they are being instructed as to what “decisions” to make.

 Hi Ian,

Not sure I would agree with much of this! 

Inflation does not simply transfer wealth around an economy! It (and QE debasement) dilutes real wealth, in making the supposed money value relative to the real wealth higher than it was prior to the inflation. It is thus a fall in the purchasing power of money.

Thanks Shaun for addressing a very important topic.

I suppose I thought that inflation targets were the contract for a sound fiat money system (oxymoron alert). Without an inflation contract, then the central banks can expand money supply faster than the growth of the underlying economy.If money represented the trade of good/services in the economy then it shouldn’t expand faster.

So simplistically with 2% growth one could allow 2% inflation in money supply. Although price inflation seems somewhat different and I can’t see why we “need” prices to increase in order to maintain a healthy system. I don’t agree that price inflation is caused purely by money inflation – that assumes infinite resources. Prices can increase if more money is sloshing around but also if less goods are available.

History is littered with famous examples of countries that broke these rules and often this has led to the complete collapse of the currency i.e. foreigners refuse to accept it. Of course our central bankers know all this but they seem quite willing to take those risks on our behalf and it does make me wonder who they really are representing.

Aye, that seemed odd to me as well. Zero inflation could equally mean that there are a number of companies operating successfully in the same space, that are in competition, keeping prices down as a result. Consumers use whichever service suits their needs best, and because prices are even, it would only be poor quality service/goods or(bad business planning) that would cause these businesses to fail. A the point that any of these businesses fail, then the remaining business can inflate their prices due to their new scarcity value.

Or am I missing the point? (Could be… my brain is melting in this heat

There’s a lot of insidious inflation not even acknowledged by Government. Example:

Went to NHS dentist who has been faithfully repairing a tooth; never thought to x-ray it (cost) and eventually, of course, it’s shown to be rotten! So, root canal and crown, yes? Yes, but she can only charge me £48 for the root canal and must do it under NHS contract. But, no, you have to go elsewhere at a private cost of £300-400 which, according to the NHS helpline she has to pay.

I took the alternative – take it out for £48 because if I make a fuss I’m off the list and the nearest NHS dentist is 20 miles away.

That’s inflation!

Isn’t it more to do with compound interest ?

When there is debt, we have to grow money in order that interest can be paid on the debt. We start with money=P and then grow it to P+I.

So debt is by nature inflationary and the more debt exists the more inflation we have to create to accommodate the interest on the debt.

There is nothing wrong with debt if its invested to create wealth and hence nothing wrong with inflation that doesn’t exceed the growth of the economy. 

But we have been borrowing to consume and the debt levels have been deliberately exploded to completely unsustainable levels in a deliberate act of economic vandalism. They have stolen peoples incomes and replaced them with debt, they are now stealing their pensions & savings and I fear we will soon realise they have stolen their futures.

I’ve always argued that the target should be minus 2 to plus 2 in the hope this will average out at a stable ( zero ) level. Deflation which is the result of productivity gains is the ideal yet the BOE seems obsessed by some weird notion that deflation would prompt UK consumers to delay purchases as apparently happens in Japan. I suggest they know very little about our prediliction for buying goods we don’t really need especially if they are perceived to represent a ‘ bargain ‘.

 Hi Drf

I should have gone on to say that everything else is not now equal; there is virtually nothing left to hide the effects of Inflation; the UK’s credit card is more than maxed out and there is very little, if any, ‘family silver’ left to sell. Inflation is now showing itself to be what it really is … a GDP reducer, a Budget Deficit increaser, a Balance of Payments Deficit increaser, … in short, an Economy Wrecker.

In my view, Inflation has been prolifically wrecking economies in the West ever since the gold standard of finance was abandoned. We’ll never see real Growth again before we’ve endured a massive correction via a Depression and probably Default.

Agreed

Hi Drf,
Sorry, I didn’t think I was being controversial, let alone original. This was widely discussed when various monetary regimes were set up.

 I assume that we agreed that with zero inflation, changes in relative prices continue so lots of them fall: perhaps more likely 1/4 or 1/3 since many will stay roughly the same. For those firms, revenue will fall but wages, probably their biggest cost, remain sticky. So profits ( if they still exist) will be squeezed. Like as not, the value of their trade-based collateral will fall.  But debt liabilities remain the same and (if you start from here at least) interest costs will not fall. Result: big squeeze. The best companies will of course sail through this, maybe stronger than before. But failures will increase among average, sub-average and marginal firms. And bankruptcies among the self-employed with mortgages. So there will be more disruption, more redundancies, more closures, more frictional unemployment.

If you are a fan of creative destruction as a way to speed up competitive evolution, this may be good. We certainly needed to shake out the weak fruit in 1979, though that was a one-off, not a permanent regime. But in a high-debt society, zero inflation is, perhaps perversely, not a recipe for business stability.

Personally, as a saver, I hate unpredictable inflation and disagree with QE2 and all who sail in her as she heads for the rocks. But I am happy to trade 1-2 per cent inflation for lower investment risk.  

 Agreed Critic.

Hi Argyllrs,

” instead of increasing the cost of everyday goods it has increased the
cost of saving and investing, therefore increasing the overall cost of
living well beyond the RPI.”  It seems to me that you are contradicting yourself here? The reason the cost of living has increased in your own words is that the cost of everyday goods has increased.  This is due mainly to the debasement of QE, which causes inflation. Debasement always causes inflation as even Keynes identified, and to which Shaun refers today. (There are always natural sporadic price cyclic increases and decreases from time-to-time according to various factors, such as bad harvests, shortages and decreasing supplies of scarce resources. These should not be confused with real inflation.) I do not see that saving or investment has any cost, ever. It is an economic sacrifice, not a cost. The only variable is the rate which capital earns, which naturally varies from time-to-time.

QE actually goes (in the present implementation form) to buy Gilts to give the government fake money to spend in the economy. That is why it is inflationary. It funds fake money for the government to spend; Keynes original concept was that governments would then redeem this fake money when the economy recovered and there was an upturn.  He reasoned (rather like Karl Marx ) without considering human nature.  In any democracy politicians want to get re-elected. To redeem the debt which they have borrowed in a recession, effectively as fake money, at an upturn would require increases in taxation, decreases in public spending or an increase in the real PSBR.  Any of those options would lose them votes, so they omit that part of the supposed Keynesian cycle prescription.  Look back over the last 50 years and you will see that whenever politicians have printed fake money to save themselves from the results of their own profligacy they have never implemented the second component in the cycle of supposed Keynesianism. That is why like Pinocchio’s nose inflation just grows and grows!

I’ve never understood why inflation is needed, although reading Dave S posting has made it clear. What about the  Chicago Plan? I was reading about it  here -http://www.imf.org/external/pubs/cat/longres.aspx?sk=26178.0 which would seem to resolve most of our difficulties and would allow for zero inflation with no adverse effects. Maybe I’m missing something, anyone got any comments on it?

 Hi outsideratdisqus,

The only part I did not see as being valid in your original posting was “…not least because zero inflation implies that up to half the prices are falling so we should have a lot more bankruptcies and business failures.”  I think you are confusing the issues here? Zero inflation would not cause bankruptcies or business failures. Zero inflation gives an economic system of sound money.  In such a system enterprises can plan to invest ahead, since they can accurately determine their mark-ups, margins and costs so as to be profitable, particularly with longer term investments. It is QE debsement which makes that impossible. So it is QE and any debasement which reduces the real wealth creating processes, not Zero inflation which is destructive.

I am not a fan of “creative destruction” whatever that is supposed to be. I agree with your point regarding savers.  However then you revert to a state of happiness with 2 % inflation!  It is inflation of any sort which is destructive, not zero inflation.

 Hi DaveS,

Debt is not inflationary! Perhaps you are confusing debt with fractional reserve banking? They are not the same thing. In a system of sound money debt can be acquired only by borrowing capital which others have accumulated by initially saving from income.  That was the origin of banking – to take deposits from savers and to use part of them to lend to others who wanted to borrow at a margin. 

It is only the distortion and manipulation in the present system over many years now which has corrupted that process, mostly due to fractional reserve banking, and the failure of those supposedly controlling and regulating the banking system and economy to prevent these abuses.

Hi Drf

I’ve seen you mention ‘real wealth’ in various comments recently to back up your points which I haven’t entirely understood. What exactly do you mean by ‘Real wealth’ – the only description I can find on-line through a quick search, is various woolly ideas from the likes of Greenpeace.

 And learnt from the depression that inflation is BAD and heeded that lesson, like the Germans did after the 30s.

 Hi Drf,

Creative destruction is the process where innovations destroy established old businesses and give rise to better new businesses.

For example, we won’t pay for telegraphs in the email age. Improved technology destroyed the telegraph business, but consumers gain.

Hi Shaun,

The opposite of a risk premium should be a safety discount. Hence the Swiss are selling bonds with a safety discount. And the model that says negative interest rates are not possible could include a deflation discount. Maybe Japanese Govt bonds could be calculated with a deflation discount priced in.

Hi barncactus

I sometimes wonder what Keynes’s definition of the long run “in the long run we are all dead” would be in political terms? I am not sure there is language for that! Perhaps ultra ultra long term or maybe in the spirit of Buzz Lightyear “Beyond Infinity”

Hi Drf

Should your scenario be true then the external members of the MPC should be ashamed to take the circa £130k salary,and “external member” would find its way into my financial lexicon too.

Hi Expat

Quite so.

Together greed and power breed insanity.

Hi Anteos

One of the ironies of the last few years is that the Bank of England pension fund and I made similar investment choices. We both decided to invest in some index-linked investments (specifically UK bonds based on the RPI).

However I warned of the dangers of an inflationary episode from the earliest days of this blog. From November 17th 2009 in my second post.

” To my mind inflation in the UK as measured by the Consumer Price Index has proved to be quite persistent through a period when many were telling us it would be heavily negative and there are considerable implications for the future from this.”

So my views and my investment were aligned and consistent.

The Bank of England however kept telling us that there would be no inflation whilst having a pension fund which by its strategy took the opposite view.

Hi Forbin

I can offer some help on an index base as the RPI if we take January 1987 as its base is now 241.8. Now if you wish to include the 1970s which were something of an inflationary episode we can go back to the January 1974 rebasing which gives us 954 now….

The post 74 and post 87 animals may not be exactly the same thing but in principle they were/are.

Hi Critic Al

I was against the 2% CPI target from the beginning as it represented a relaxation in my view compared to a 2.5% RPI target. I was  ploughing a relatively lonely furrow but note that with the “surprise” that RPI has been 0.9% over CPI that the evidence so far confirms my belief.

We will never know if or maybe how much of a difference that would have made to the events that then unfolded.

Hi Dave
 
No problem. I think it is a subject that is going to be pushed to the front of the agenda soon and wanted to make my case ahead of events.
 
I have a couple of thoughts for you. Firstly in many ways money supply is something of an oxymoron too…
 
Secondly as we stand in the UK “Without an inflation contract, then the central banks can expand money supply faster than the growth of the underlying economy” can be looked at in various ways.
 
 With an inflation contract the Bank of England is trying as hard as it can (QE etc.) !
 
And currently expanding the money supply faster than the growth of the underlying economy is not too hard.

Hi Richard

You have touched on an argument I have made in the “are we going Japanese debate” which is that we start from a more consumerist base. Also the issue with disinflation always seems to come with the concept that it will be permanent which is in stark contrast to the way in which we are told that inflation will be “temporary”.

And of course there invariably is some disinflation somewhere which is often in areas where consumers benefit. For example cheaper internet access,are they now saying that such things are bad? If so are those arguing this insisting on paying the previous higher price for their own internet access?

 Hi Expatin,

If that is what Creative Destruction is supposed to refer to then it is not a matter of being a fan of it or not? It is the natural process of innovation and improvement, which is of course what advances civilization.  I do not see myself that we have to invent a new term for that, since it is a process which has existed since not long after the origin of civilization. Hardly anyone would be against that, except perhaps old fogies who did not want change from what they were used to!

 Real wealth is the real stuff represented by money.  Money is a
token of real wealth.  The easiest way to conceive what real wealth is
is to think back to barter.  Anything which had the attribute of being
able to be bartered as one thing for another is real wealth.  Money was
introduced to ameliorate the difficulties in barter, its poor liquidity
and the clumsy relativity in compound forms. People today wrongly use
the term “wealth” or “wealthy” to refer only or principally to a
quantity of fiat money value.  That is extremely and dangerously
deceptive, but it of course suits the politicians and left-wing
economists. In the beginning real wealth and money were the same and had
an identical value.  Real wealth is that stock of real things and real
values produced in an economy, which are desired and which are there
potentially to be shared (under the system in place) amongst its
populace.

I use “real wealth” as a term essentially to define purchasing power as
related to the present value of fiat money.  As we have politicians in
control of the fiat money system the only thing you can be sure of is
that they will debase fiat money and continuously increase taxes.  This
results in a continuous and ongoing disparity between stuff and fiat
money, always downwards of course relative to the real stuff! Thus the
modern concept of GDP is not based on real wealth, principally since it
is bloated to include socialist services and other vague and notional
illusions which are costs on an economy rather than contributors to its
real wealth.

Certain activities in an economy result in the generation of real wealth
(e.g. mining, manufacturing, exported goods and services sold to
another economy).  Many activities including some defined as services do
not result in any new real wealth being generated, but receive money by
sequestering value already existent (Merchant Banking, Investment
Banking, brokering, Quangos).

So, the problem when you have politicians and delusion is that these
qualities these become confused, and are used deliberately to conceal
the truth.  It is then only possible to understand what is really
happening by relating all values back to real wealth.

This is not a definitive description, and I accept that some aspects of
some services to which I have referred may from time-to-time contribute
some real wealth to an enclaved economy; in some cases it is also
possible to sequester real wealth from another economy, which produces
real wealth in the receiving economy.  I hope that helps at least a
little. Adam Smith defined it fairly well, if you look at his work.

Shaun,

Hi, its Shawn.

re: JOHN MAULDIN is crampin’ your style like a super daddy sponge imitating life!

Instead of breaking up
I wish that we were making up again.
– Neil Sedaka, 1962

Sorry for random post before reading this message but.. I have read your little blog probably for a year and your thing is the music lyric money making mockery piss take. Unless I misjudged you and you are copying Mr. John Mauldin millionaire extraordinaire in form and function, which i doubt, then this only adds to my prior analysis of his pseudo personality and cc: style.

Mauldin the great knowledge + style carbon copy king of aggregating’ + I am a the top sales guy posing as and economic guru + i now mimic ‘notayesman’…with musical lyrics adding my lemon twist of half century old jests to make a macroeconomic point look interesting to absorb my competitors and open web sources into a collage I like to call “MEEEEE”

It is called me to make mad $$$$ [he does make lots of money for doing nothing but what in University int he states would be plagerism]

JOHN MAULDIN
http://www.mauldineconomics.com/frontlinethoughts/and-then-there-is-disaster-c

“Thoughts from the Frontline* And Then There Is Disaster C”
BY JOHN MAULDIN AUGUST 11, 2012

[master of mass marketing Eco-news, at least he makes the clear disclaimer he is he is *FRONTIN']

BY JOHN MAULDIN

[COMMERCIAL ANNOUNCEMENT FIRST BY OUR SPONSOR: this is a paid advertisement.]

+ [our legal disclaimer]

[below you will see many of my friends, partners, and referral sites that assure me no matter what you do I will make $$ off YOU boyyyyy; simply thinking about looking at clicking is a click baby: as well, there are a myriad of peons you never heard of not at my mass mailing top dog G level that i have taken or earned over the years.]

How do you say? I Did a Star Trek Borg* on them, and WE not only emulate their style WE assimilate their style : The film’s tagline, “There can be only one,” that used be highlander; have you SEEN him lately??? I am highlander John!

BY JOHN MAULDIN AUGUST 11, 2012
Breaking Up Is Hard to Do
And Then There Is Disaster C.
Who Do You Trust?
Carlsbad, San Francisco, Atlanta, and Buenos Aires

They say that breaking up is hard to do.
Now I know, I know that it’s true
Don’t say that this is the end.
Instead of breaking up
I wish that we were making up again.
– Neil Sedaka, 1962

I have contended for some time that Europe is faced with two choices: Disaster A, which is the break-up of the eurozone, or Disaster B, which is the creation of a fiscal union, which keeps the euro more or less intact. Over the last few months I have come to realize that there is indeed a third option, which now looks increasingly possible. This is rather sad, as the third option is just an even worse Disaster C. Each choice carries with it its own unique set of problems, but the outcome of any of the choices will be that the people of Europe face a serious recession, if not a depression. This will impact global growth for more than a short time and, depending on the choice, could plunge the world into a crisis as bad as or worse than the recent credit crisis. In today’s letter we look at all three choices, meanwhile musing on how we arrived at the bottom of such a deep hole, shovels flailing.Breaking Up Is Hard to Do“Breaking Up is Hard to Do” was written and sung by Neil Sedaka. It was a #1 hit exactly 50 years ago this week. And while that song was written for a different era, it could be the theme song for much of Europe today….

GO TO THE LINKE if you need know more..!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

P.S. click the link if you want to give me another 5 G’s..

“A Borg is a collective proper noun for a fictional group of people in the productions of the science fiction series Star Trek. The Borg are a collection of species that have turned into cybernetic organisms functioning as drones of the collective the hive, pseudo-race, dwelling in the Star Trek universe. The Borg take other species by force into the collective and connect them to “the hive mind”; the act is called assimilation entails violence, abductions, and injections of cybernetic implants. The Borg’s ultimate goal is “achieving perfection”.

Sorry If I am wrong… I am right ..he is a bottom feeder living on top!

CLICKKKKK!

Hi Shaun,

Thank you for this thoughtful article.

I have decided to consider Inflation as an increase in the money supply (beyond productivity?), and statistics such as CPI as a (partial) measure of the IMPACT of that inflation (rather than a measure OF inflation).

A simple question for opponents of (what they call) fractional reserve banking.

http://socialdemocracy21stcentury.blogspot.co.uk/2012/08/a-simple-question-for-opponents-of.html#comment-form

Money was not introduced to ameliorate the double coincidence of wants:

http://www.levyinstitute.org/pubs/wp_717.pdf

The suggestion is made among the comments that there is a distinctive “real wealth” to be identified. Readers shouldn’t forget that the process of capitalist production is M – > C – > M’

These aren’t real terms but money terms where M’>M

I suspect that deflation is good for the consumer but bad for those whose business is speculation in the “bull market” sense.