FEAR & GREED | Business News
Ask Fear & Greed: Why is low inflation so bad?
Mar 4, 2025
A listener raises an intriguing question about the risks of low inflation versus high inflation. The hosts explore how low inflation can lead to consumer behavior changes, potentially stalling economic growth. They delve into the dangers of deflation, highlighting its negative impact on spending habits. Alongside these economic discussions, a nostalgic segment adds a personal touch, intertwining insights with relatable experiences. This blend of economic theory and storytelling keeps the conversation engaging and thought-provoking.
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Quick takeaways
- Low inflation can lead to decreased consumer spending as people delay purchases, fostering a harmful cycle of deflation.
- Deflation negatively impacts businesses, causing layoffs and higher unemployment, which further exacerbates economic stagnation and complicates recovery efforts.
Deep dives
The Risks of Low Inflation
Low inflation poses significant risks to economic growth. When prices fall, consumers are incentivized to delay purchases, anticipating even lower prices in the future, which can lead to decreased spending on non-essential items like cars and vacations. This behavior can create a cycle of deflation, where businesses earn less revenue and respond by cutting wages or laying off employees. Ultimately, this results in a stagnating economy, as consumer spending slows down, making deflation more damaging than moderate inflation.
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