For the first time in almost 50 years American economists will be likely to determine a deflation again. There will probably be a year-over-year drop in prices and the last time something like this happened, was in 1955. The probable deflation will be reported Friday morning the 26th of February by the government.
A lot of people (and most likely shoppers) see this as good news. Though deflation might be a big threat to a country’s economics; while prices drop consumers and companies postpone their expenditures and investments because they are hoping to see the prices drop even more. In order to keep selling products, companies of course have to drop their prices. But in order to drop their prices they have to lower their costs. Mostly companies lower their costs by dismissing staff members or cut in salaries. These staff members then have a lower income and have to save on certain expenditures. So companies sell less than before and again, they are being forced to lower their prices, and again they have do to this by firing people and cutting in salaries. This is what we call a deflationary spiral.
Some people associate deflation with the Great Depression and fear the same consequences, but American economists can assure us that the year-over-year drop in January was only 0.1% and nothing alike 10% in 1932. So it will definitely not be as bad as the Great Depression of the 1930’s.
An important cause of the deflation is the drop in gas prices. Since gas is pretty much the source of everything in an economy, it has had a big influence on consumer prices.
This influence was mainly noticeable in food prices.
Deflation definitely is very bad for a country’s economics. According to me the consequences deflation carries along are much worse than inflation. If there is inflation prices rise but there is a price index that makes sure the salaries rise along with the prices. Also people aren’t going to postpone their expenditures, on the contrary: they’re going to spend as quick as possible when there is inflation.
I certainly hope the United States’ economics isn’t going to end up in a deflationary spiral because this would be very bad news for a lot of American families and companies.
Source: http://money.cnn.com/
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According to me, deflation has hard consequences.
BeantwoordenVerwijderenAt first sight, a price decrease looks very positive because everything becomes cheaper.
But deflation can be damaging for the economy of a country. Consumers postpone their purchases, because they can buy more for the same money next year. Companies are obliged to drop their prices and lower their costs. Mostly, they fire people to lower their costs. So there is unemployment too.
A lot of people see deflation as something positive, but I think it isn’t good at all.
I agree with Hanne and Niels, deflation is indeed very dangerous. At first sight the people are happy because everything becomes cheaper and they buy more things but they don't understand the impact of the situation. Deflation is very bad for the economy of a country and I think they government has to warn for the effects.
BeantwoordenVerwijderenI also agree with Hanne, Niels and Maxime. Deflation isn't promising at all, the economy suffers severely and the effects on the market are incredibly high. The government has to avoid such a situation by reaching solutions. Causes are: the interest increases, it has an influence on the economic situation resulting in an recession.
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