Inflation never went negative, so prices haven’t gone down. Positive inflation ensures prices nearly always steadily rise. The article is saying the rate of inflation is the lowest it’s been for a while which means prices are rising at the slowest pace for a while.
Nonsense. If the population grows then that means there would be more demand for money, not less. If inflation goes up in this scenario, then that can only mean the money supply has increased. Theres nothing wrong with deflation.
I suppose you can point that out, but it’s worth saying that the deflation that’d be required to decrease prices would be way more catastrophic than the semi high inflation we experienced. With deflation people are encouraged to keep their money in the bank instead of investing or spending, which means businesses lose profits and banks become more hesitant to lend, which means businesses fail and lay off workers, which means less consumer spending and investing and so on. Deflation leads to the economy collapsing while modest inflation leads to economic growth.
If deflation was 1%, it means the prices of everything is dropping. It means that waiting to buy something means you’ll save money, so you wait and don’t buy. So they have to drop the price to sell more so they can restock. But then people wait more and buy less. So they start making less. So they need less workers. So they let people to. So people can afford less, so they buy less. So prices drop. So they let people go. Etc etc.
What you are talking about is a recession. It’s not favourable to rich or poor, but the poor will suffer more as the rich can afford their basic needs whether there is inflation or deflation.
You think people will wait indefinitely to buy the things they need because it will be slightly cheaper? If you need an oil change you have to change your oil. Maybe for construction that holds true and a lot of consumer products, but 1% isn’t a big deal for most necessities as they are routine and hard to put off.
But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.
You would buy a house because you need a place to live. I hate that housing has become an “investment” and we have corporate landlords, literally! Does it matter that my house goes down in price if i plan to live there for the rest of my life? I also said I’m not an economist so thanks for the conversation on this topic.
I think it’s important to note that if you know there will be 1% deflation you will delay purchasing. If you aren’t sure prices will be lower tomorrow there is far less incentive to gamble on a lower price tomorrow, especially for things you need now or get better value acquiring now vs 1% savings.
In that context, a 1% deflationary rate that might drift around a little would be great. There are other consequences as well but just addressing your point.
Technology is deflationary, but you don’t see the tech industry crashing as people wait for steep discounts far exceeding 1% over a couple years or so. Deflation is made out to be a boogeyman because it means the peasants get a pay increase if they keep the same wage unlike the pay cuts they currently receive through inflation.
Tech is deflationary for the same technology, as it devalues due to newer technology coming to replace it. The overall cost of an up to date computer, or camera, for instance is inflationary.
The newer technology costs more than the old, but, barring ridiculous price pumps like the kind from nvidia, they’re priced around what the old technology was when it was new, thus it’s cheaper given the effect of inflation. Either way, it doesn’t negate the point that people don’t forego new technology purchases because they’ll be cheaper in a couple years or so. That goes against the argument that deflation-haters love to claim, that somehow people will wait because it’ll be cheaper. People don’t actually seem to operate like that in practice.
Absolutely, prices have come down considerably in the last year. At my local grocery store, the cheapest eggs were about $4.50 for a dozen, now they are $1.99. The price of lumber has also fallen 40%-50% since its high in 2021. Finally, gas prices are about $1 less per gallon compared to a year ago.
Anecdotally, as a parent who grocery shops for my family, yes. A few key items that my family goes through have finally dropped to more regular prices. Not pre-pandemic sale prices, but much lower than they have been. Not everything, and some products seem to have changed or disappeared permanently, but I have noticed a difference in our grocery bill.
No and that is unfortunately by design. The federal reserve targets 2% inflation as “the ideal.” Prices dropping across the board ie negative inflation is called deflation. Deflation can lead to a deflationary spiral where prices drop reducing busines income resulting in layoffs which causes people to spend less causing a drop in income for businesses… The federal reserve attempts to control the money supply (and inflation along with it) through setting interest rates as the lender of last resort for banks. These rates indirectly control how much money is dumped into the banking system and eventually broader economy. The lower the rates the more money enters the system, the higher the rates the less money enters the system. (simplification but good enough for ELI5) However, because the federal reserve can only reduce rates to 0% there is a limit on how much money can be injected into the economy through cheaper lending (government spending is a potential work around for this limitation) so it is seen as being much more of a hazard than runaway inflation as in the latter case, rates can be raised to an arbitrary degree. ie rates are raised until inflation drops.
While reduced inflation is good on its own, there are several indicators that the economy is likely to enter a recession within ~1 year or so. eg. short to medium term givernment bond rates, the general trend of recessions following substantial monetary tightening (higher rates) by the federal reserve etc.
The indicators are all there for predicting a recession. The only question is if policy changes before then. There’s always a variance between prediction and reality.
The economy did enter a recession, but the administration refused to call it one as there were not broad layoffs and unemployment remained low. Artifacts of COVID reducing the US workforce by 2.6% (Deaths + people deciding it was a great time to retire)
Some prices have gone down, but you don’t want a deflationary economy.
Ideally what you want is a ~2% inflation rate, and wages that increase in tandem. The US job market has remained incredibly resiliant throughout all of this, so hopefully it is close to balancing out.
The idea is that a small predictable rate of inflation discourages people and financial entities from hoarding cash and instead invest it in places that make the economy move.
This has been the prevailing theory since the end of the Great Depression, and it’s generally worked out pretty well.
The caveat to this is that you need wage growth to remain in step with inflation, otherwise you are just screwing working class people over.
I know what the idea is, but is it actually true in practice? If the rate of deflation was, say, 2%, who would actually hoard cash just because it’d be supposedly worth 2% more? I highly doubt customers would, especially since it’s not like businesses would automatically cut prices by 2%. As for businesses, why would they hoard that cash when they can make investments that would increase the amount of cash they have? Surely, if a 2% increase in value was so worth hoarding cash, why aren’t they all just hoarding cash into interest-paying accounts that pay 4% in a 2% inflation environment? Constant inflation has been the prevailing theory, but it doesn’t mean it’s the optimal setup.
Consumers wouldn’t, because they still need things like food and shelter, which they already spend most of their income on. But corporations and wealthy individuals absolutely would. In a deflationary environment, the value of money sitting still in a big savings account goes up while the value of goods and assets goes down. They shift their wealth into whatever vehicle they feel will provide reliable growth.
This was one of the problems we had during the Great Depression. Nobody was investing in new or expanding businesses, so no new jobs were being created.
That’s assuming deflation was the cause of that instead of simply being a symptom of the collapse of the financial system. Also, in a deflationary environment, money sitting in a savings account wouldn’t necessarily collect interest, in fact the interest rate for a savings account could even be negative. Either way, a healthy investment environment would provide much greater returns than a 2% increase in value of money sitting in an account. Consumers continuing to buy things means there are clear business opportunities.
I mean have prices come down at all?
Inflation never went negative, so prices haven’t gone down. Positive inflation ensures prices nearly always steadily rise. The article is saying the rate of inflation is the lowest it’s been for a while which means prices are rising at the slowest pace for a while.
Worth noting that most nation-states will aim for an inflation rate of about ~3-4% annually to account for things like a growing population
Sure glad my annual cost of living bump is 2-3%
Source? Most OECD nations aim for ~2%.
Nonsense. If the population grows then that means there would be more demand for money, not less. If inflation goes up in this scenario, then that can only mean the money supply has increased. Theres nothing wrong with deflation.
Am I reading this right, that you think if there’s more demand for money it would drive prices down? That is incorrect
I’unno, EconomicsExplained video I saw awhile back
Clown logic… But thank you for your service
ELI5: Price still going up. But price is going up much slower.
well, if it went negative it becomes deflation
Yea I’m just pointing out that prices are not going to come down and will only keep going up albeit more slowly than before
I suppose you can point that out, but it’s worth saying that the deflation that’d be required to decrease prices would be way more catastrophic than the semi high inflation we experienced. With deflation people are encouraged to keep their money in the bank instead of investing or spending, which means businesses lose profits and banks become more hesitant to lend, which means businesses fail and lay off workers, which means less consumer spending and investing and so on. Deflation leads to the economy collapsing while modest inflation leads to economic growth.
Purchasing power is restored when inflation slows down and pay increases to compensate for the increased goods prices.
Now I just need my pay to increase 😅
That would be deflation, which is almost always Very Bad™
I’m not an economist but i would think less than 1% deflation would probably be fine almost indefinitely for the US at this point.
If deflation was 1%, it means the prices of everything is dropping. It means that waiting to buy something means you’ll save money, so you wait and don’t buy. So they have to drop the price to sell more so they can restock. But then people wait more and buy less. So they start making less. So they need less workers. So they let people to. So people can afford less, so they buy less. So prices drop. So they let people go. Etc etc.
What you are talking about is a recession. It’s not favourable to rich or poor, but the poor will suffer more as the rich can afford their basic needs whether there is inflation or deflation.
You think people will wait indefinitely to buy the things they need because it will be slightly cheaper? If you need an oil change you have to change your oil. Maybe for construction that holds true and a lot of consumer products, but 1% isn’t a big deal for most necessities as they are routine and hard to put off.
But like… if the guy making cars can’t sell cars because prices keep dropping now he can’t afford to buy the basics. It’s not a big deal for necessities to drop, but if we experience deflation then things get really bad.
There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.
You would buy a house because you need a place to live. I hate that housing has become an “investment” and we have corporate landlords, literally! Does it matter that my house goes down in price if i plan to live there for the rest of my life? I also said I’m not an economist so thanks for the conversation on this topic.
I think it’s important to note that if you know there will be 1% deflation you will delay purchasing. If you aren’t sure prices will be lower tomorrow there is far less incentive to gamble on a lower price tomorrow, especially for things you need now or get better value acquiring now vs 1% savings.
In that context, a 1% deflationary rate that might drift around a little would be great. There are other consequences as well but just addressing your point.
Technology is deflationary, but you don’t see the tech industry crashing as people wait for steep discounts far exceeding 1% over a couple years or so. Deflation is made out to be a boogeyman because it means the peasants get a pay increase if they keep the same wage unlike the pay cuts they currently receive through inflation.
Tech is deflationary for the same technology, as it devalues due to newer technology coming to replace it. The overall cost of an up to date computer, or camera, for instance is inflationary.
The newer technology costs more than the old, but, barring ridiculous price pumps like the kind from nvidia, they’re priced around what the old technology was when it was new, thus it’s cheaper given the effect of inflation. Either way, it doesn’t negate the point that people don’t forego new technology purchases because they’ll be cheaper in a couple years or so. That goes against the argument that deflation-haters love to claim, that somehow people will wait because it’ll be cheaper. People don’t actually seem to operate like that in practice.
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Absolutely, prices have come down considerably in the last year. At my local grocery store, the cheapest eggs were about $4.50 for a dozen, now they are $1.99. The price of lumber has also fallen 40%-50% since its high in 2021. Finally, gas prices are about $1 less per gallon compared to a year ago.
Eggs notably weren’t up because of inflation, but rather due to chickens dying to a chicken-pandemic.
Rest holds true tho!
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Probably not, those tend to just increase every year, unfortunately.
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Anecdotally, as a parent who grocery shops for my family, yes. A few key items that my family goes through have finally dropped to more regular prices. Not pre-pandemic sale prices, but much lower than they have been. Not everything, and some products seem to have changed or disappeared permanently, but I have noticed a difference in our grocery bill.
Gasoline has gone down quite a bit here as well.
No, we’re just being fucked slightly less than before.
No and that is unfortunately by design. The federal reserve targets 2% inflation as “the ideal.” Prices dropping across the board ie negative inflation is called deflation. Deflation can lead to a deflationary spiral where prices drop reducing busines income resulting in layoffs which causes people to spend less causing a drop in income for businesses… The federal reserve attempts to control the money supply (and inflation along with it) through setting interest rates as the lender of last resort for banks. These rates indirectly control how much money is dumped into the banking system and eventually broader economy. The lower the rates the more money enters the system, the higher the rates the less money enters the system. (simplification but good enough for ELI5) However, because the federal reserve can only reduce rates to 0% there is a limit on how much money can be injected into the economy through cheaper lending (government spending is a potential work around for this limitation) so it is seen as being much more of a hazard than runaway inflation as in the latter case, rates can be raised to an arbitrary degree. ie rates are raised until inflation drops.
While reduced inflation is good on its own, there are several indicators that the economy is likely to enter a recession within ~1 year or so. eg. short to medium term givernment bond rates, the general trend of recessions following substantial monetary tightening (higher rates) by the federal reserve etc.
The indicators are all there for predicting a recession. The only question is if policy changes before then. There’s always a variance between prediction and reality.
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quantitive easing: https://www.investopedia.com/articles/economics/10/understanding-the-fed-balance-sheet.asp
The economy did enter a recession, but the administration refused to call it one as there were not broad layoffs and unemployment remained low. Artifacts of COVID reducing the US workforce by 2.6% (Deaths + people deciding it was a great time to retire)
That’s not how inflation works
Some prices have gone down, but you don’t want a deflationary economy.
Ideally what you want is a ~2% inflation rate, and wages that increase in tandem. The US job market has remained incredibly resiliant throughout all of this, so hopefully it is close to balancing out.
I see this repeated often, but is there actually research and evidence backing this up or just policymakers masquerading their wants as hard law?
The idea is that a small predictable rate of inflation discourages people and financial entities from hoarding cash and instead invest it in places that make the economy move.
This has been the prevailing theory since the end of the Great Depression, and it’s generally worked out pretty well.
The caveat to this is that you need wage growth to remain in step with inflation, otherwise you are just screwing working class people over.
I know what the idea is, but is it actually true in practice? If the rate of deflation was, say, 2%, who would actually hoard cash just because it’d be supposedly worth 2% more? I highly doubt customers would, especially since it’s not like businesses would automatically cut prices by 2%. As for businesses, why would they hoard that cash when they can make investments that would increase the amount of cash they have? Surely, if a 2% increase in value was so worth hoarding cash, why aren’t they all just hoarding cash into interest-paying accounts that pay 4% in a 2% inflation environment? Constant inflation has been the prevailing theory, but it doesn’t mean it’s the optimal setup.
Consumers wouldn’t, because they still need things like food and shelter, which they already spend most of their income on. But corporations and wealthy individuals absolutely would. In a deflationary environment, the value of money sitting still in a big savings account goes up while the value of goods and assets goes down. They shift their wealth into whatever vehicle they feel will provide reliable growth.
This was one of the problems we had during the Great Depression. Nobody was investing in new or expanding businesses, so no new jobs were being created.
That’s assuming deflation was the cause of that instead of simply being a symptom of the collapse of the financial system. Also, in a deflationary environment, money sitting in a savings account wouldn’t necessarily collect interest, in fact the interest rate for a savings account could even be negative. Either way, a healthy investment environment would provide much greater returns than a 2% increase in value of money sitting in an account. Consumers continuing to buy things means there are clear business opportunities.