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U.S. inflation falls to 3%, lowest level in more than 2 years, as price pressures ease
(www.politico.com)
this post was submitted on 13 Jul 2023
345 points (95.8% liked)
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There’s a difference between can’t sell it and can’t sell it for the same price. They would have to reduce prices. At 1% less profit margins it’s probably still manageable and profitable to continue to operate especially with your costs for the new car parts also decreasing by 1%.
But you specifically called out for 1% deflation indefinitely. That’s not “1% less profit margins.” That’s a consistent devaluing of an asset. If my house was bought for 100k and next year it’s worth 99k and the year after it’s worth 98k then why would I buy it? Subsequently it creates a feedback loop where people stop having faith in a currency, which devalues it faster, which then means that house is now sitting on the market because it’s a risk to buy it. Which means they don’t build new homes because people know it’ll be cheaper next year. Which causes construction workers to be laid off and it cascades. Plus part of what makes the Dollar increase is that it’s a world currency. We rely on it increasing. Tons of countries tie their economy to our dollar. Currently, the country with the worst inflation, Argentina, is talking about ditching their currency and switching to a dollar backed currency. People buy and trade with dollars which increases our value. If deflation hit they would stop using it and our economy would literally collapse. Hundreds of millions of people would instantly be impoverished.
You would buy a house because you need a place to live. I hate that housing has become an “investment” and we have corporate landlords, literally! Does it matter that my house goes down in price if i plan to live there for the rest of my life? I also said I’m not an economist so thanks for the conversation on this topic.
I think it's important to note that if you know there will be 1% deflation you will delay purchasing. If you aren't sure prices will be lower tomorrow there is far less incentive to gamble on a lower price tomorrow, especially for things you need now or get better value acquiring now vs 1% savings.
In that context, a 1% deflationary rate that might drift around a little would be great. There are other consequences as well but just addressing your point.