Good deflation is back

CNB Vice Gov. Vladimír Tomšík became a bit of a celebrity in late 2013, when he said with regard to the devaluation that there is only one kind of deflation, and that it is bad. We made fun of this by cursing all those lower prices for energy, phone calls and banking services. The CNB has learned its PR lesson and now refers to the drop in oil prices as a "pleasant demand-side shock," but Gov. Miroslav Singer continues to criticize Pavel Kohout and others who claim that there is "good" deflation and "bad" deflation. Singer indicated in Ekonom that these amateurs fail to consider the "velocity" of money. This is a fancy way of saying how fast people spend the money they get. Central bankers don't like talking about this in any depth, because it points to one of the main current problems of the world's economy: There is huge monetary inflation through quantitative easing and the like, but most of the newly printed money is staying with those at the very top. Those at the bottom would love to spend it to help eradicate deflation, but it's simply not trickling down to them.