Deflation: a Q&A with economist Christine Chmura

If you've ever gaped at a huge winter heating bill, griped at the price of what you remember as a 10-cent candy bar or groaned when filling the car's gas tank tops $50, falling prices sounds like a good thing.

But they may not be.

Here's a quick briefing from economist Christine Chmura, president of Chmura Economics and Analytics in Richmond, on inflation's mirror image: deflation.

What is deflation?

You get deflation when you have persistently falling prices, over several quarters.

Why is it a bad thing?

People start holding off making purchases, waiting for prices to fall more. Sales slow down and it could make a recession last longer.

Any examples?

We may be seeing deflation in housing in places like California and Florida. Prices have been falling and people aren't buying because they think they'll fall some more.

Are we facing a generalized deflation now?

I don't think so. I think price reductions are doing what businesses want them to, encouraging consumers to start buying, judging by the latest retail sales statistics.

Have we ever seen general deflation in the U.S.?

Yes, that was what happened in the Great Depression.