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?
Deflation is “bad” because it leads to an economic death spiral, and there’s no way to stop it.
Prices go down
People see prices going down and hold on to money thinking it’ll be cheaper if they wait.
Less purchasing despite lower prices cuts profit margins, so producers produce less.
Sellers lower prices more in a desperate attempt to make SOME money.
Repeat.
This usually leads to layoffs to try to salvage money, big sales to get rid of inventory, then eventually there’s nothing to buy, no one making it, and everyone loses their job.
Interest rates don’t fix it, taxes don’t fix it, you just cross your fingers and hold onto your butts
They’re not mutually exclusive. Recessions can trigger deflation and vice versa.
The problem with deflation is that it’s a positive feedback loop. Recessions not marked by deflation usually have stunting mechanisms. Deflation doesn’t. That’s not to say it’s infinite, rather I’m explaining why economists piss down their leg thinking about it
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u/StuartMcNight 8h 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?