- For years, central banks from Japan to Europe and the U.S. have been fighting mightily to buck up their inflation rates and escape the deflationary trap. The concern: that falling prices will prompt consumers to spend less—based on expectations that prices will continue to decline—and businesses will delay investment amid uncertainty about revenues.
I've long suspected the logic behind this argument. In the US, where you have a consumer driven economy, do people really give a damn, or even notice, that prices have fallen by 1% in a given year? I buy consumables because I need them. I laptop because I need it. I buy a phone because I want it. I don't care if the same phone will be $3 less next year. Of course, it could be argued that in the aggregate deflation could have an effect, but I would guess that it is the kind of effect that is very difficult to tease out from other factors.
I have an economic theory: If annual deflation/inflation is within the range of [-2%, 2%], no one gives a measurable shit.