The risk within the economy may not be inflation: deflation is just as possible

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There was a lot of discussion of US inflation on Twitter last night, lead by comments from Paul Krugman. The argument can be summarised fairly simply.

It is that there is no underlying reason for inflation bar supply chain issues. The Bank of  International Settlements provided data to support this.

Supply chain issues are very largely impacting  durable goods. They are where prices are hiking, especially in the US as people react to shortages.

But shortages will not last. And people are simply deferring purchases as a result of their innate understanding that this is a temporary phenomenon.

The consequence is that as soon as supply chain issues are resolved prices of these goods will fall. Compared to now they will go into negative territory.

There is as a consequence deflationary pressure growing in the economy.

So, why it was asked make matters worse by tackling an inflation that might more than reverse, when any measure can only have a negative impact?

It is an argument with which I agree.


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