The specter of deflation has settled over vast tracks of the global economy, forcing countries large and small to assess the risks of falling prices.
Major economies such as Japan, Germany, the United Kingdom and the United States are all experiencing ultra-low inflation or outright price decreases. Emerging markets like Thailand are under pressure. Deflation is widespread across Europe, and prices have been sliding for years in trouble spots like Greece.
Now the alarm has spread to China. The People’s Bank of China slashed interest rates at the weekend to keep prices from weakening too quickly.
“[The central bank] has clearly become more concerned about deflationary pressure in recent weeks,” said Tao Wang of UBS. Inflation is now running at 0.8% in the country, a five-year low.
What’s so bad about paying less for stuff? Consumers are right to cheer — so long as their country is experiencing “good deflation.” In places where price declines have been driven by falling energy prices, for example, people can save a little more or spend a little more.
Technological advances can also result in price reductions. Flat-screen TVs or cameras, for example, are much cheaper now than just a few years ago. For the same price, customers walk away with much improved products.