Consumer Prices in U.S. Decline 1%, Most on Record
bloomberg.com
bloomberg.com
For the record, in the post-Civil War error we experienced mild deflation and strong economic growth. As long as prices don't make sudden, double-digit jumps, the economy can cope with it. And it's NICE to see consumer prices going down for a change.
no doubt some reversion to the mean is beneficial...but a healthy economy shows some nonzero manageable inflation level...like around 2-3%. a deflating economy is deadly in the longer run, because demand goes away and so does employment.
Sustained high deflation is only good for you if you have a magical source of guaranteed income, completely and totally independent of the economy, like a magic money printing machine.
Of course the flip side is that if workers' real wages increase too much in a deflationary environment, this could lead to high unemployment in the short term.
Hyperinflation kills banks, because the loans devalue so fast they are worth nothing when they are repaid.
Deflation in small amounts can be good for savers, but high and sustained deflation kills all borrowers.
That includes short term financing businesses need to pay salaries while sales are still being made and profits are still coming in.
Overall it leads to everyone hoarding cash and not spending and that just murders the economy.
In reality, the economy is quite capable of coping with any mild change in prices, and quite bad at dealing with sharp changes in price. It doesn't particularly matter whether those changes are up or down.
As recently as six months ago, everyone was freaking out over the possibility of runaway inflation, and the government was cooking the official statistics by excluding such "non-essentials" as food and energy. This is one of those times where moderate deflation is probably a healthy correction, and I hope the government doesn't try to stop it.
Not actually. Permanent inflation is a feature of modern fiat money regimes. As I noted, we have experienced prolong periods of modest deflation and economic growth in the past.
Economic growth tends to increase prices for all the usual Keynesian reasons and tends to increase the money supply, even with a commodity reserve currency. However, increased productivity tends to reduce prices. If productivity increases fast enough and money growth is limited by a commodity standard, it is possible to have a growing economy with declining prices. In fact, it has happened in the past, as I noted.