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business newsRecent Price Cuts From Electronic Arts, Yum Brands Scream Deflation
Changes in consumer behavior have pushed down the price of "Madden" and slashed top menu items at Pizza Hut.
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On Monday the media picked up a supposed price cut of Research In Motion’s (RIMM) new BlackBerry Torch on Amazon.com (AMZN). The phone was retailing at $199.99 but was selling for $99.99 on Amazon -- a very bearish sign for a new product that launched just a week before, but Research in Motion said the Amazon price had been $99.99 since the launch. Strange story, but either way it’s a price cut.
See BlackBerry Price Slash Spells Doom for RIM
Then yesterday, Minyanville’s Michael Comeau pointed readers to the price cut of Madden NFL 2010, which is made by Electronic Arts (ERTS). (See "Madden" Price Cuts Bad Omen for Electronic Arts). Amazon was at the center of this price cut as well. Offering the brand new Madden video game for $49.99, $10 off the $59.99 industry standard for new video games. Comeau also points out that GameStop (GME) cut the price of Madden as well.
Today Pizza Hut, a Yum Brands (YUM) company, is planning to announce price cuts on most of its menu's main items. According to the New York Times, medium pizzas will cost $8, large pizzas will cost $10, and specialty pizzas will cost $12. I remember when a large, two-topping pizza cost $19.99.
The obvious reason for the price cuts are changes in consumer behavior. Consumers aren’t spending like they used to because they're worried about a sluggish economy; so companies slash prices to entice consumers.
Unfortunately for inflationists (hand raised), this screams deflation. Deflation arises when heavily indebted individuals (or corporations/governments) are forced to reduce spending because their earnings and incomes are deflating. This leads to a default on debt.
Right now the bond market seems to be betting on deflation.
The US 10-year bond yield is 2.65%; when the financial crisis was at its worst the yield was 2.08%. The German 30-year bond is trading under 3% and the Japanese 10-year is currently yielding 0.94%. This suggests that investors believe inflation will be near zero for the next 10 to 30 years.
Deflation is obviously here but the Fed seems determined to stop it. The only true bullet left in the gun is massive money printing, which will eventually be inflationary. Looking ahead, it seems we may be destined for rising prices and high unemployment. Time to brush up on stagflation?
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