scotview wrote:I've never understood why Central Banks don't target deflation (say, -1%), or at least zero inflation. Wouldn't that just be great.
Because of the negative feedback loop. If there is deflation, people know <
whatever they want to buy> will be a little cheaper next month so they make the logical and sensible decision to delay buying it for as long as possible. Then the economy comes to a grinding halt because everyone has stopped or is delaying spending. Cue massive drops in sales, job losses, companies going bust so tax not paid, GDP plummets, ever less profit made so ever less tax paid, all the balls fall on the floor and the even juggler gets the sack.
Fear of this scenario is why a little bit of inflation (2% actually) is always considered essential.
All AIUI.