http://money.cnn.com/2013/04/19/news/economy/low-inflation-risks/index.html?iid=SF_E_Lead
The article discusses the bad effects of low inflation as prices have been steady recently. First, when inflation is low, firms are more likely to apply many measures to cut costs, for example cutback in hiring. Second, low inflation discourages consumers to spend and when people expect prices to fall, they are more motivated to wait for prices to fall as far as they can before any spending starts. And fourth, low inflation often comes along with lower wage and revenue growth.
An unnaturally low inflation rate could undoubtedly become a problem in the economy - especially in a situation where the fed is attempting to encourage more consumer expenditure. If inflation continues to fall, it would be quite unsurprising if the fed increased its asset purchase program in order to bring inflation to the desired level. Deflation is undoubtedly dangerous and it seems correct for the fed to do what it can to fight it.
ReplyDeleteLow inflation is not a good sign of our economy. The Fed needs to print more money and start buying treasury bonds to get the money circulating through the economy and increase consumption.
ReplyDelete