Why Is Deflation Bad?
We all know why Inflation is bad but why is Deflation bad? All growing economies have a healthy mild inflationary bias (prices slowly creep up). However the Eurozone just announced that in December 2014, prices turned negative. Japan has been in a deflationary state for decades despite several government efforts to inflate the economy. For most of this decade, governments and Central Banks (especially in Asia) have been focusing on how to contain Inflation and curb asset bubbles (stock markets, property). It looks like this year, they will be more concerned with the threat of Deflation. We all know why Inflation is bad: $1.00 worth less than $1.00 can buy less things. Your savings worth less and less in terms of real purchasing power. Your salary fails to keep up with cost of living. But why is deflation bad? Isn’t it good that petrol, food, clothes, transportation etc is cheaper? Here are some of the reasons why Deflation is bad: 1. Consumers...