Deflation
in sentence
696 examples of Deflation in a sentence
The Fed’s goal may be to stimulate domestic activity in the US and to reduce the risk of
deflation.
Not wedded to central bankers’ obsolete doctrines, he has made a commitment to reverse Japan’s chronic deflation, setting an inflation target of 2%.
Deflation
increases the real (inflation-adjusted) debt burden, as well as the real interest rate.
Though there is little evidence of the importance of small changes in real interest rates, the effect of even mild
deflation
on real debt, year after year, can be significant.
The ECB’s Faulty WeaponBRUSSELS – With inflation in the eurozone stubbornly remaining on a downward trajectory, pressure on the European Central Bank to do “something” to prevent outright
deflation
is growing.
The discussion has so far followed easily predictable national patterns: Creditor countries do not object to deflation, because it increases the real value of their investment, whereas debtor countries’ repayment burdens would grow heavier.
Differences in financial structure thus matter profoundly in the effort to prevent
deflation.
The government, unable to print money to bail out the banks or increase export competitiveness through currency devaluation, is left with only two options: default or
deflation
(austerity).
The central bankers justify their concern about low inflation by arguing that a negative demand shock could shift their economies into a period of prolonged deflation, in which the overall price level declines year after year.
Fortunately, we have relatively little experience with
deflation
to test the downward-spiral theory.
But Japan has experienced a low rate of inflation and some sustained short periods of
deflation
without ever producing a downward price spiral.
Moreover, low inflation and periods of
deflation
did not prevent real incomes from rising in Japan.
The ECB should not try to balance inflation in the south and east with
deflation
in the north in order to hit artificial continent-wide targets.
Its policymakers deny the eurozone’s crisis-ridden countries a more active fiscal policy; refuse to support a European investment agenda to generate demand and growth; have declared a fiscal surplus, rather than faster potential growth, as their primary domestic goal; and have begun turning against the European Central Bank (ECB) in the struggle against
deflation
and a credit crunch.
With every month that the economy loses productive capacity, the likelihood of stagnation and
deflation
rises.
The German government can use its considerable leverage to compel France and Italy to pursue the structural reforms that both countries need, while allowing a growth-friendly demand stimulus to lift the threat of
deflation
hanging over the eurozone.
The ECB famously raised interest rates twice in 2011, just as the euro crisis was worsening and unemployment was increasing to double-digit levels, bringing
deflation
ever closer.
The discussion quickly turned to the difficulty of measuring inflation accurately and the need to build in a “safety cushion” to avoid
deflation.
If they remove the stimulus too soon by raising taxes, cutting spending, and mopping up the excess liquidity, the economy may fall back into recession and
deflation.
So the question is whether these euro-zone members will be willing to undergo painful fiscal consolidation and internal real depreciation through
deflation
and structural reforms in order to increase productivity growth and prevent an Argentine-style outcome: exit from the monetary union, devaluation, and default.
Unless the supply of a currency tracks potential nominal GDP, prices will undergo
deflation.
By extension, any nominal debt contract denominated in Bitcoin would rise in real value over time, leading to the kind of debt
deflation
that economist Irving Fisher believed precipitated the Great Depression.
The rationale for favoring weak currencies was that a competitive exchange rate would prevent a further contraction in domestic output and prices (deflation).
The prospect of
deflation
is a threat to prosperity and financial stability, particularly for countries with low growth and high levels of public and private debt.
While nominal-wage growth has picked up, real-wage growth reflects the slide into
deflation.
As a practical matter, the ECB’s price-stability objective, originally designed to protect the eurozone from Italian-style inflation, has ended up protecting it from German-inspired
deflation.
While helicopter drops are a viable policy option if
deflation
is spiraling downward, as it was in the late 1920s and early 1930s, that is not the case today – neither in the eurozone nor in the global economy.
Consumers today are not holding back on spending because they expect goods and services to become cheaper, as one would expect during a period of
deflation.
Data on corporate profits also contradict the view that we are mired in
deflation.
The progress made on the banking union is important, but two key components are still needed: first, a true rehabilitation of the European banking system to ensure that credit flows resume throughout the eurozone, while averting deflation; and, second, debt mutualization to protect vulnerable countries from market gyrations.
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