It's more about people holding out on buying things because they believe it will be cheaper later. Food is a bad example because people will always buy food, regardless of the cost. But why would you buy a car if it might be $2,000 cheaper in a few months? Then a few months pass and now it looks like that car might be even cheaper, will you spend now or keep holding out to see if it goes lower?
It's such a bad system when the logic follows the other path too. "I should buy a car now because it's only likely to get more expensive, while my income stagnates"
Yup, that's why many economists agree that having very low inflation (0.1-2% YOY) is better for the economy compared to no inflation. But that also only works so long as salaries increase alongside it, which in many parts of the world, they haven't.
Because at the end of the day money is for spending. Having some savings is good, but over saving is a trap for both the economy and an individual person. Imagine you live incredibly frugally your whole life, always saving. One day you die, and what did you work your whole life for? How much of life, or things you could have enjoyed, did you miss out on?
Actually it could theoretically be any number as long as it's generally accepted that that's the target- it's only 2% bc some dude in New Zealand thought that sounded good. The economy/stock market is all about managing expectations.
Well, the other advantage of inflation is that wages are sticky downwards. It's very unpopular and difficult to cut workers' wages, so if wages in a particular job are too high, inflation provides a natural release valve to gradually reduce the real wages over time. Sucks to get your real spending power reduced but it beats being laid off.
All that to say that some salaries not tracking inflation is a feature, not a bug. But you're right that if median wages fall behind inflation, that's bad news for everyone's standard of living.
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u/Terpcheeserosin 7h ago
So things don't cost less
But money can buy more?
So right now eggs are 10$ a pack
After deflation
You can buy 2 for 10 dollars because "money can buy more"
How is that not also, "eggs cost less" ?