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
Think like this: your gas tank is half full, so you go to the station, and you see the price dropped by a dollar. You look it up and realize it dropped by 50 cents yesterday, 25 cents the day before that, 10 cents the day before that, 15 cents before that.
So you might think “why fill up now, I could come back tomorrow and it will be lower.”
You’ll eventually buy gas but you’re motivated to wait and see.
If you don’t buy that, then consider a house. This is definitely a place where people hunt and look at historic pricing. When prices are flying up then you’re motivated to buy TODAY
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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?