Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?
Inflation is mostly self-correcting in the absence of an additional severe disaster, as prices rise eventually people will stop buying luxuries until prices stabilize. Deflation has no such corrective loop, it's actually the opposite. As prices fall the value of a dollar now is much less than the value of a dollar tomorrow, which means people hold onto it, which means businesses have to lower prices, which means deflation accelerates, and theoretically could go until people are buying nothing but the absolute necessities. In our modern world with technology it takes far less people to provide the necessities than there are people so millions of people would be jobless.
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u/StuartMcNight 9h ago
Low inflation might be the first step towards deflation. Many economists would argue that deflation is a worse situation for the economy because it leads to a sharp drop of consumption and therefore a huge recession follows?