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> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency..." The first part of that sentence
by runako 4y ago
> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency..."
The first part of that sentence says that prices decrease. They do not increase at a lower rate, they actually fall in deflation. Deflation is negative inflation, if you want to think of it that way. Deflation is _not_ small positive inflation.
Since we are on a tech-focused site, the best example is that tech goods are typically deflationary. 1 TB of SSD costs less than it did 3 years ago. Imagine this happening to everything in the economy and you understand deflation.
The second part is maybe confusing you:
> increase in the purchasing power of the currency.
This says that if I have $100 and a good costs $10 today, I can buy 10 of them. If prices decrease (because this is deflation, prices go down) and now the good is $5, I can buy 20 of them with the same $100. The purchasing power of my $100 has increased.
> I think I have to categorize that statement as wishful thinking.
Average US wage in 1970 was about $6,200 (per year!). Then inflation spiked, prices rose on everything. Eventually that filtered back into the labor market because nobody will work if the wage won't buy food at the newly inflated prices. This will happen again, but it will take longer due to labor generally having less power in today's economy vs that of 1970. This will happen whether or not the minimum wage increases, but more of necessity -- laborers will not come to jobs that don't pay their bills.
- A4ET8a8uTh0 4y agoWe may be talking past one another and seem in agreement mostly except for your opening assessment. The original if clause may be true( "If the expectation is that everything will be cheaper next month than this month, that creates an incentive for everyone (and every business) to delay purchases as long as possible (because they will save money buying in the future"), but it is not applicable to the current environment as we are not experiencing deflation, but inflation. As in, business are not expecting lower cheaper ( lower prices ). They will be expecting less high prices. If they will curtail spending it is because got prohibitively expensive. If anything, they will save money buy stocking up, while the price is low. I personally think your interpretation model for what is happening is off here. Hope that makes more sense now. Let me see if I can sum up the main argument until now: You post >> If the expectation is that everything will be cheaper next month than this month, that creates an incentive for everyone (and every business) to delay purchases as long as possible (because they will save money buying in the future). I post >> [ but ] Nothing will be cheaper ( decrease in price ) [ next month ] You post >> I strongly recommend you review the definition of deflation. I post >> "Deflation is a fall in the overall level of prices in an economy and an increase in the purchasing power of the currency. It can be driven by an increase in productivity and the abundance of goods and services, by a decrease in total or aggregate demand, or by a decrease in the supply of money and credit." You post >> "Deflation is negative inflation, if you want to think of it that way. Deflation is _not_ small positive inflation." I post >> this post since we seem to saying the same thing so I revisit initial assumptions
- runako 4y agoYou are correct, this entire thread is a response to a question specifically about deflation (not inflation). So the discussion in the thread is about decreasing prices. Which, as you point out, is not what we have now. You may want to join the top-level thread, which is about the current inflationary environment.