Region:
World
Category:
Economy
Article type:
Approaches

The world upside down: economic powers fight against deflation

Region:
World
Category:
Economy
Article type:
Approaches
Author/s:
By Pablo Pla
Publication date:
Print article

If households and businesses expect prices to remain depressed for a long period, may postpone spending and investment, which would cause a downward spiral in economic activity and prices

Japan, the United States, some European countries and China now live concerned about a cog in the economy in Argentina is unknow. Deflation. The low price for a long period of time. In a country of more inflation in the world such as Argentina, we expect stability and low price like rain for the field. But all that glitters is not gold. The risk of paralyzing the economy generates in those countries entrepreneurs seek permission to increase wages to the workers (as in Japan) and lower prices in supermarkets is taken as the alarm and not a blessing. What's wrong with paying less for things? Consumers have reason to celebrate; provided that their country is living a "good deflation". In places where the price declines have been driven by falling energy, for example, people can save a little more or spend a little more.

But economists are worried about something more dangerous: the prospect of a damaging deflationary cycle can develop in a time when central banks are running out of ways to respond.

If households and businesses expect prices to remain depressed for a long period, may postpone spending and investment, which would cause a downward spiral in economic activity and prices. Deflation also makes it difficult for countries to pay debts, and can force weak economies to cut wages to compete globally.

Central banks often fight this cycle by cutting interest rates and seeking other stimulus measures. But many have already cut rates to a minimum in his attempt to recover from the global financial crisis.

In Europe, investors are so nervous they are essentially paying for the privilege of borrowing money. The idea is that if deflation takes hold, government bonds with negative yields could be a safer bet than other assets.

traslation: Belén Zapata