Comment by marcosdumay
2 days ago
Deflation is about all prices going down. Just a few decreasing is normal.
Anyway, WTF, economics communication has a huge problem. I've seen the article's explanation repeated in plenty of places, it's completely wrong and borderline nonsense.
The reason deflation is bad is not because it makes people postpone buying things. It's because some prices, like salaries or rent just refuse to go down. That causes rationing of those things.
See "price stickiness" and what is simplified as "menu reprinting costs"; there's usually a cost associated with changing prices, and a cost associated with renegotiating prices for everything that's not being sold on a spot market. People cannot buy housing at spot, and while spot-labour pricing is definitely a thing for some services it's so socially destabilizing for anything skilled that most workforces operate on salary.
The reverse of this is that high inflation tends to cause a lot of strikes, because salaries refuse to go up and very high levels of inflation need salary repricing every month or even week.
In Argentina I've learned from a young age that prices take the elevator, but salaries take the stairs.
It got old really quick having to negotiate with the boss every 6 months.
Rent and salaries don't like going down because of debt. Debts are denominated in currency units and go up with inflation (interest rates have a component to correct for inflation) but they don't decrease if the currency gains value over time (this would need negative interest rates). I suppose that's something that could be done with regulation.
Yes. And even if people could refinance, debt values going down causes further deflation.
Does it? Debt repayments are money deletion, so if debt is nominally written-off, less has to be paid back. That is, there will be less "anti-money" in the system but the "money" is still there. That increases the money supply, therefore inflationary.
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I agree. It's super common that the price of vegetables goes up and down arround the year, in particular due to the harvest season.
>It's because some prices, like salaries or rent just refuse to go down.
a common argument, but one that doesn't bear out in the absence of regulation enforcing that.