The (orginal) idea of a target of 1-3%ish (depending on country) is that you want inflation small so businesses can ignore it for their planning. A business will avoid spending and possibly lay off people if they are expecting big increases in costs coming up.
“Good” inflation is driven by demand. Company doing well -> expand -> need more staff -> not enough people in job market -> have to raise prices to pay higher salaries to attract staff = inflation.
Bad inflation is more like: sales down -> cut staff to save costs -> less people have disposable income because they are losing their jobs -> sales down even more -> have to charge more per item because low sales remove economy of scale benefits = inflation
Deflation is a sign that the second one is starting. Sales down, so companies cut prices to try to get their sales up, they then have to cut jobs to stay afloat with lower prices, then those people cut don’t have disposable income so sales fall further.
You may have noticed the problem, which is that issues with inflation impact employees. Deflation is bad for employees. Inflation is bad for employees. Most larger companies are fine either way.
I’d rock out to a year or three of like 0.1-2.9% deflation.
But that’s a much more slippery slope. Any more than that and black Friday will look like the current housing market.
The (orginal) idea of a target of 1-3%ish (depending on country) is that you want inflation small so businesses can ignore it for their planning. A business will avoid spending and possibly lay off people if they are expecting big increases in costs coming up.
“Good” inflation is driven by demand. Company doing well -> expand -> need more staff -> not enough people in job market -> have to raise prices to pay higher salaries to attract staff = inflation.
Bad inflation is more like: sales down -> cut staff to save costs -> less people have disposable income because they are losing their jobs -> sales down even more -> have to charge more per item because low sales remove economy of scale benefits = inflation
Deflation is a sign that the second one is starting. Sales down, so companies cut prices to try to get their sales up, they then have to cut jobs to stay afloat with lower prices, then those people cut don’t have disposable income so sales fall further.
You may have noticed the problem, which is that issues with inflation impact employees. Deflation is bad for employees. Inflation is bad for employees. Most larger companies are fine either way.
Also you generally want the most financially prudent decision a business can make not to be “sit on the money until it’s worth more”.
Inflation encourages spending money, deflation encourages saving money.
It’s even worse when the citizens do this.
That’s what I meant by “black Friday will look like the current housing market.”
I can see how that wasn’t a totally clear point though