Feb
26

Double-edged Deflation

deflationThe January CPI numbers came out today and Y-o-Y inflation was -0.2%, yes, prices actually fell one-fifth of one percent. Before rejoicing, note that deflation is a double-edged sword. On one hand, it boosts worker pay since any raise is now a real raise. But it harms monetary policy because banks don’t lend at negative rates. As such, interest rates are now effectively higher even if they remain unchanged.

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