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?
You want a small level of inflation bc it incentives people to spend money and circulate money into the economy and feed growth.
Deflation is a death spiral.
When consumers know that prices are going to be cheaper if they wait then they wont buy.
When consumers aren't buying goods then stores wont buy more inventory and start to lay off workers if sales get bad enough.
When stores aren't buying more inventory then factories decrease output and layoff workers since they dont need them.
When stores aren't buying goods and factories aren't shipping goods then transportation companies also layoff workers due to smaller workload.
With all of these layoffs then instead of people not buying goods to wait for cheaper prices they now arent buying them bc they're out of work. Hence the death spiral.
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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?