Most of the time deflation is a signal of a struggling economy. Disinflation — when prices still increase, just more slowly — is the goal.
In an effort to stimulate a sluggish economy, the government got creative and started applying negative interest rates.
Inflation has fallen sharply in the last year and a half, but prices haven’t come down. Economists say that’s not a bad thing.
As price gains cool down, we consider the risk that the trend will go too far. Plus, is consumer sentiment a trustworthy indicator of economic activity?
Deflation has led to lost revenue for companies, layoffs, and decreased consumer spending.
Adam Posen of the Peterson Institute says that implementation of the zero-COVID policies made people feel “very insecure.”
Japan had struggled to even reach the central bank inflation target of 2%.
In some ways, falling prices would actually be bad news for the economy.
Slowing inflation isn’t as dangerous as prices dropping for a long period of time. But it’s important to keep disinflation in check.
Prices of many goods are dropping as demand slows and people stay at home more. But does this mean deflation is here to stay?
