Biflation

What is biflation?

Biflation occurs when there is inflation in one part of the economy, usually on commodities, while at the same time there is deflation in a different part of the economy, such as domestically-produced items and those bought with credit. Economists don’t necessarily agree on the causes of biflation. But in a tight economy, demand for essentials has risen and pushed up prices, while demand for more luxury items has fallen and pushed prices down. Commodities also trade in global markets, where there is more buying appetite, while domestically-produced items like cars have to contend with consumers unwilling to make large purchases.

What’s the significance?

Biflation means a rise in prices for everyday purchases like food and energy, but a fall in larger items such as cars and houses. Some fear that we are heading to biflation, and signs point in the direction of general deflation but rising commodity prices. With dismal unemployment numbers, that would mean an even heavier burden on much of the population. Stretched budgets would have to stretch even further to buy the necessities.

Who’s talking about it?

Nick Summers at Newsweek explains the term and what signs say we’re heading there…dillbeans at The Motley Fool thinks the Bush Tax cuts, which put more money into the hands of the rich, have brought us to biflation…Dian L. Chu on Zero Hedge makes the case that we’re not just experiencing deflation, but biflation.