Inflation.

[davieG]

Seeing that France has just gone into negative inflation (http://www.bbc.co.uk/news/business-31532269) and it seemingly being cast as a bad thing would some economics whiz care to explain why this is and why +ve inflation is good? Or am I misunderstanding it.

 

I know it's bad for savers but why else is it bad?

 

[ADK]

It's not really bad.

[Buce]

http://m.wisegeek.com/what-is-negative-inflation.htm

[Julian Joachim Jr Shabadoo]

I know it's bad for savers but why else is it bad?

 

Apparently, it's very common in periods of deflation for prices to drop and consumers actually hold off on large purchases in case the price drops further. Sales for cars, electricals and other luxury items can drop drastically and harm companies. For most people though, it's great news - more for your money across the board

 

Is this all due to the massive drops in fuel costs?

[Danno]

Deflation is normally harmdful as people will stop spending as they can see that the price will keep falling and will be cheaper next week. So aggregate demand will fall and could cause a rise in unemployment as companies aren't getting the demand that they were before and so will need to lay people off. Also makes the real value of people's debt increase, and can make asset prices fall such as house prices so confidence will be lost in the economy.

Inflation is good for some people as it means that the economy is doing well and there is a lot of demand for goods/services. It also can result in an adjustment of wages for some and they feel better off. For the government it can also reduce their debt burden.

[Guest Kopfkino]

It really depends how much of this deflation was caused by falling oil and energy prices. If deflation is caused by a reduction in costs then in the short term there should be no real harm and it can be a good thing depending on the confidence of consumers and firms. Deflation down to innovation is also seen by many as a very good thing because it shows advancement and an increasing of the economy's potential which is good in the long run. However if this deflation is due to a lack of demand then it can be a sign of bad times coming for the economy and you hit a downward spiral because people delay purchases. Borrowers are also worse off, new borrowers are put off from borrowing and people save more.

[GaelicFox]

Should see deflation now GTF has left the canteen

[DANGEROUS TIGER]

I understand that the drop in oil prices, is indeed the cause.

[davieG]

Thanks for the replies. So it's not necessarily good or bad it just is what it is and it's other factors that determine its affect.

[MooseBreath]

I think when it's one particular price that's dragging the whole measure down - in this case oil - then it's much less of an issue than when you've got more generalised deflation. Strip oil out of the question and the rate is probably about where you'd want it to be.