Economists Warn About the Consequences of Falling Prices

Economists Warn About the Consequences of Falling Prices: Although prices aren't rising as quickly as they used to, they are still high.

A 2-liter soda bottle used to cost $1.67 in supermarkets across the country. Now it costs $2.25.

It was $26,752 last month, up 16% from February 2021, and up 43% from three years ago.

If prices dropped after the recession, who wouldn't want to go back to the days before prices soared?

Compared to a year ago, prices were up 2.5%, far from the peak of 7.1% in mid-2022. In February, prices were up 0.3%, down from 0.4% in January.

"Falling prices have more consequences than meets the eye," warns the Bank of England. But what's the big deal?

Japan has experienced deflation much more recently than the United States since the Great Depression.

The Spanish central bank believes lower prices seem good but can hurt the economy if they discourage consumers from spending and cause businesses to cut even more.

To prevent inflation from causing another recession, the Bank of Japan implemented negative interest rates in 2016. Deflation increases the cost of inflation-adjusted loans.

By bringing down food and gas prices, deflation makes groceries more affordable for Americans.

The Bank for International Settlements examined 140 years of deflation in 38 economies in 2015 and found that falling prices have no correlation with economic growth. Between 1929 and 1933, the US experienced a severe economic downturn that resulted in a third drop in output, a quarter drop in prices, and a 25% rise in unemployment.

Falling stock prices, falling bonds, and falling real estate could topple banks that hold crumbling investments or loans to developers and homebuyers.

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