Key Points
- As shoppers await price cuts, retailers like Home Depot say their prices have stabilized and some national consumer brands have paused price increases or announced more modest ones.
- Yet some industry watchers predict deflation for food at home later this year.
- Falling prices could bring new challenges for retailers, such as pressure to drive more volume or look for ways to cover fixed costs, such as higher employee wages.
What are the root causes of that deflation though? I would posit the over extension of the Chinese economy in an effort to mimic “Number go up” results without the required fundamentals (see evergrande).
I see “inflation is good” parroted a lot, without much analysis as to why. I understand how continual inflation is a major driver of modern western economies, and those steering those economies require it to support current polocies and the general status quo. However, that being said, I fail to see how that makes it required for things to be “OK”.
The price of a raspberry “inflates” in the winter, and “deflates” when in season. The price of commodity consumer electronics is in a continual state of deflation, as new teohnology emerges. At the microcosm prices move in both directions frequently, and are just deemed adjustments. Why then, at the macro scale is a continual increase in pricing considered a sign of economic health?
“Inflation is good” from the perspective of Government fiscal policy.
Paying out interest on a AAA-rated loan (e.g. US bonds) is quite cheap, often below the national inflation rate. It allows (in theory) Governments to make large investments - like infrastructure - that work to increase their national GDP, which in turn can lead to increases in their tax-base, making it easier/cheaper to service their loans in the future.
So if the US issues a $1b bond, payable at 10yrs - with inflation at ~3%, the “value” (purchasing power) of that money would have decreased by over 25%.