Deflation? Inflation? Which is it?
Overall, food and energy costs drove consumer prices up -- albeit very slowly -- over the last 12 months, but stripping out those components, prices are flat year-over-year, the government said Friday.
Deflation? Inflation? Which is it?
Overall, food and energy costs drove consumer prices up -- albeit very slowly -- over the last 12 months, but stripping out those components, prices are flat year-over-year, the government said Friday.
The deflation doesn't seem too likely just yet. The market is likely to clear eventually and the supply demand will reach its equilibrium. The low inflation allows the Fed to keep interest rates low. Even though the demand for loanable funds is low right now, this ensures that those willing to invest are able to (and encouraged to) do so at low rates of interest. The stimulation of investment will lead more hiring and thus help the employment sector of the US. Inflation allows real wage rates to reach equilibrium levels without nominal wage cuts. Therefore, moderate inflation actually helps improve the functioning of the labor market.
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