Q: What's deflation, and is it good or bad?
Ask The Fool
Q: What’s deflation, and is it good or bad?
A: It’s the opposite of inflation, and it happens when price levels fall over time, typically during a recession.
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It’s frequently accompanied by rising unemployment and decreased production.
So you get the idea — although the idea of lower prices may sound good, deflation isn’t usually welcome. Prices may be lower, but that’s mainly due to supply outstripping demand, as many people (and businesses) can’t afford various items or are putting off buying them.
Experts today are divided on whether the U.S. is facing the threat of deflation, but many agree that there are measures that can be taken to combat it. The Fed, for example, can lower interest rates, as it has recently done.
The Motley Fool take
Sure, Disney (NYSE: DIS) shares have fallen sharply since May. And its recent quarterly earnings report was mixed, with earnings up just a little, after adjustments. But lamentations in the news media have been overblown.
Disney’s parks and resorts division posted a 7 percent increase in revenue. Operating income did drop 4 percent, but that’s due to higher labor and fuel costs (and fuel has since retreated dramatically).
Not everything is zip-a-dee-doo-dah-riffic. However, where’s the love for the dependable ESPN and Disney Channel cable revenue, which is offsetting lower ad revenue at ABC? Where’s the applause for the popularity of the consumer-product division’s “Hannah Montana” and “High School Musical” merchandise?
These aren’t banner times in the media industry. News Corp. shares were slammed recently after the company lowered its expectations. CBS shares fell, too, even after the company reassured investors that it would keep its beefy dividend.
Others, such as Time Warner and Viacom, are relying on steady cable properties, but are also feeling the sting of the fading advertising market.
So hang in there, Mickey. Things aren’t great and won’t get any better in the near term, but shares seem to have been punished more than they deserved. Recession or worse, entertainment still matters.
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