Are we really seeing deflation? Since I live in Canada I guess I don't see it right at the moment. Our dollar has depreciated against the USD recently and I'm seeing inflation in the stores, not deflation. The official stats say we're at a nominal level of inflation but I know when I went grocery shopping everything was either up in price or repackaged in such a way as to disguise the price hike. Mind you the frozen pizza's and pork were a good deal and the gas fillup when I left there was cheap.

How is it in the US? Are you seeing bigtime deflation? Price of cereal down? How about diapers... if they are I'll load up on them when I head to Florida for the annual family vacation.

I somehow think this deflation thing is only really happening in my portfolio. In the real world, prices do not seem to be dropping. Wages do not seem to be dropping. Taxes, definitely not dropping. Just revenues and how do lower revenue streams lead to deflation?

They don't. If materials slow, there will be, perhaps, a very temporary cut to costs, however, mass production is the real cost cutter and as production slows cost of production per unit go up. China is not experiencing deflation... and that is where most of our goods come from now. There material costs were held in check by the government so I don't expect a big cost savings for manufacturures there.