Near Zero Inflation:Good or Bad?

by Laura Ehrenberg-Chesler on October 21, 2010

in Economic Indicators,inflation/deflation,Investment Strategies

The primary reason the Federal Reserve is considering more Quantitative Easing,  is their concern that the rate of  inflation is too low.  So low in fact, that it might lead to deflation.  This of course would be bad for the economy.

However, another point of view on very low inflation was articulated a few days ago by economist Ed Yardeni.  He contends that low inflation based on increased productivity is actually desirable.  It allows wages to rise faster than prices.  This is good for the individual consumer.  According to Ed, higher inflation, i.e. higher prices, may in fact be a drag on the economy, and depress the purchasing power of consumers.

Productivity is high, and Retail sales, and Railcar loadings have been better than expected.  This data points to an increase in economic activity and consumer demand.  Maybe near zero inflation is actually more stimulative, and positive, than previously thought.

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