Low Inflation Is the Same Sort of Problem as Deflation

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Saturday, 08 June 2013 08:12

I'm glad that Paul Krugman made this point clearly in his blog today. I wish that he had done it five years ago. I made this point repeatedly (here, here, and here).

It is remarkable how many economics reporters and even economists seem to think that something magic happens when inflation crosses the zero line and turns negative. This is absurd on its face. The inflation rate is an aggregate of millions of different price changes (quality adjusted). If it is near zero then a very large number of the changes will already be negative. When it falls below zero it simply means that the negative share is somewhat higher. How can that be a qualitatively different economic universe?