Deflation
in sentence
696 examples of Deflation in a sentence
Deflation
--a steady ongoing decline in prices-- gave businesses and consumers powerful incentives to cut spending and hoard cash.
Hence the Keynesian solution: use monetary policy (lower interest rates) and fiscal policy (expanded government spending and reduced taxes) to keep the economy from ever approaching the precipice where
deflation
becomes possible.
In selling massive stimulus packages and bank bailouts, Western leaders told their people, “We must do this or we will end up like Japan, mired in recession and
deflation
for a decade or more.”
No one wants to live with the trauma of the
deflation
(falling prices) that Japan has repeatedly experienced.
The ECB followed suit in 2014-2015, when
deflation
appeared (wrongly, in hindsight) to threaten the eurozone.
Today, the economic environment is totally different than it was just a few years ago: financial markets are buoyant, financing conditions are highly favorable, the economy is expanding satisfactorily, with no sign of
deflation.
The ECB need not reverse course completely, but it could declare victory in the fight against
deflation
and start exiting its emergency policies.
If debt fears are now being superseded by the danger of deflation, as recent data suggest, the European Central Bank has its work cut out for it – and there is nothing to suggest that it is up to the task.
Core inflation (the consumer price index after excluding volatile food and energy prices) in the eurozone fell to an annual rate of 0.8% in October – a 47-month low – while producer prices fell by 0.5%, suggesting that
deflation
is already in Europe’s economic pipeline.
The Euro's appreciation may well be the tipping factor that triggers
deflation.
As the now ten-year-old Japanese slump tells us, once
deflation
and contraction have established themselves, standard policies stop working.
In Europe, monetary caution, self-imposed fiscal constraints, and the Euro's appreciation all lead to clear dangers:
deflation
and a prolonged slump.
With a global recession a near certainty,
deflation
– rather than inflation – will become the main concern for policymakers.
Policymakers will have to worry about a strange beast called “stag-deflation” (a combination of economic stagnation/recession and deflation); about liquidity traps (when official interest rates become so close to zero that traditional monetary policy loses effectiveness); and about debt
deflation
(the rise in the real value of nominal debts, increasing the risk of bankruptcy for distressed households, firms, financial institutions, and governments).
The report’s argument is that while the stated motivation for ultra-loose monetary policy might be to guard against
deflation
and promote economic growth at a time when demand is weak, low interest rates also help governments fund their debt very cheaply.
Making matters worse, weak demand and debt overhangs are fueling concerns about
deflation
in the eurozone and Japan.
The fact is that China remains gripped by deflation, with prices and output in a downward spiral.
Two types of
deflation
spirals are currently at work in China.
Relatively slow growth in the money supply also led to deflation, worsening the problems of bad debts.
Notably, price growth turned positive last month, suggesting that the threat of
deflation
has been eliminated.
For starters, zero inflation and persistent periods of
deflation
– when the target is 0% and inflation is below target – may lead to debt
deflation.
Rather than continue to allow misguided conventional thinking, centered on German economic ideology, to impede effective action, the ECB must pursue quantitative easing (QE) “for the people” – an adaptation of Milton Friedman’s “helicopter drops” strategy – to reverse
deflation
and get the eurozone back on track.
Such a strategy should be based on Friedman’s assertion that “helicopter drops” – printing large sums of money and distributing it to the public – can always stimulate the economy and combat
deflation.
Beyond lifting the eurozone economy out of deflation, such an initiative would have massive political benefits, as it would reduce resentment toward European institutions, especially in struggling countries like Greece and Portugal, where an extra €500 would have a particularly strong impact on spending.
The key to success will be to manage the sequence of liquidity injections and interest-rate reforms so that the effort to address local subprime debts does not trigger asset-price deflation, while reducing financial repression that cuts off funding to more productive sectors and regions.
Indeed, Europe is one shock away from outright
deflation
and another bout of recession.
This should spur a stock-market rebound, boost household consumption, weaken the yen’s exchange rate, and halt
deflation.
Given that disinflation or
deflation
leads through a valley of tears before competitiveness improves, there is reason to doubt whether election-minded politicians, with their short-term orientation, are capable of staying the course.
Immovable adjustment constraints have caused eight countries to experience nominal wage
deflation
in at least two years since 2008.
At this delicate moment in the world economy the ECB is seeking to establish its anti-inflation credibility at the very moment when the spectre of
deflation
is appearing for the first time in half-a-century.
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