January 29, 2010

HOW WOULD DEMAND EVER GO UP WHEN YOUR POPULATION IS DECLINING?:

Japan deflation hits a record pace to threaten recovery (BBC, 1/29/10)

Japanese consumer prices fell at a record pace in December, according to the latest official figures.

Prices fell by 1.2% in the month, the biggest drop since the current consumer price index began in 1970. [...]

Deflation encourages people to hang on to their money because it will grow in value, rather than be eroded by inflation.

It also makes sense for people to delay buying goods because they expect future falls in prices. These factors depress demand.

Cutting interest rates is a standard way of getting people to spend more, but the Bank of Japan has held rates at almost rock bottom for years and has little room for manoeuvre.

Posted by Orrin Judd at January 29, 2010 12:47 PM
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