Investing in a deflationary world

WE live in an abnormal world of falling consumer prices. The phenomenon is so rare that the US, for instance, saw year-on-year price declines only in one month (this January) in the last 50 years, if we leave out the depths of the financial crisis in 2009. Indeed, deflation fears have been increasing globally since last year, notably in Europe and Japan, and increasingly in China.

Normally, deflation is bad for equity investors as companies lose pricing power, affecting profit margins, which curbs their appetite for investment and growth. Also, consumers delay spending, hoping prices will fall further, hurting demand. The good news is we see the current phase of disinflation as a transitory phe…