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.

Share This Post
Facebook Twitter Email

Speak Your Mind


This site uses Akismet to reduce spam. Learn how your comment data is processed.