What is Deflation?
Affected by multiple factors since the year, the national consumer consumption index CPl year-on-year growth is generally running at a low level, National Consumer Consumption Index, the year-on-year increase in CPI is generally at a low level, with a year-on-year increase of 2.1% in January, and then gradually declined, and the year-on-year increase in June was 0.3% year-on-year in 07 months.
The main CPI index continued to fall, raising market fears of deflation. What is deflation? Compared with inflation, money is becoming more and more valuable, and it is cheaper to buy things. It's cheaper to buy things. If there is less money and the goods in circulation remain the same, prices will fall, and companies will reduce investment and production, thereby cutting wages, not increasing their employees, or even laying off employees.
As a result, when the people's income declines, and the people's income decreases, and they are more pessimistic about future employment, they will reduce their willingness to consume, which will further lead to a decrease in demand and a failure to increase commodity prices, forming a vicious circle.
So you will find that even though the price of potatoes has been falling, people still don't want to buy it, because they feel that the price will continue to fall, falling to one pound and five cents.
From the perspective of ordinary people, goods are getting cheaper and cheaper, and money is becoming more and more valuable. For me, isn't it more cost-effective to spend less now and save money to spend when it will be more valuable in the future? The most extreme state is to give up all expenses except food, clothing, housing and transportation.
If the best thing for the common people is to cut a lot of spending, then is there a huge reduction in demand? So the demand continues to fall, and the price of goods continues to fall. For merchants, reducing the cost of reducing stores, actively shrinking, or even directly closing stores and factories is their optimal reduction.
So is unemployment rising again? Are the unemployed people losing their cash flow and even more afraid to spend money? Consumption and demand will be further reduced, and a vicious circle will be entered. Fortunately, the current national government is more or less Keynesian, and although the details may vary, there is a consensus that the state should intervene in the economy in the face of crisis. To prevent the free slide of the economy, the government must come to the rescue. Deflation is nothing more than two ways, either to boost demand or to give money.
The current economic situation seems to be recovering, but in fact there is still some distance from recovery, and many of them are currently poor consumption. To put it another way, it's the early days of recovery. The latest data shows that orders are leading the way to improvement, but inventories are at high levels, oversupply and prices are low. As the economy continues to recover, inventory consumption is undersupply, prices are rising, and corporate earnings are improving, driving production and investment. The economy continues to rise and enters overheating, which is the evolution of the cycle, but only if there is sufficient and sustainable demand release.
Fortunately, the money supply is still abundant, and the economy is in the early stages of recovery rather than recession. For a real recovery, it seems that more policy instruments will need to be introduced above.