Deflation is a good thing

Intelligent Investor

Unlike in the economic theories followed by central bankers, deflation is actually a good thing. f a litre of milk costs $1.00 at your local Woolworths (ASX:WOW), would you prefer to pay $0.90 instead? Most people would of course answer 'yes'. Instead of comparing prices today, what if we compare prices over time? Again, most people would prefer their milk cost less rather than more in a year’s time. Their preferences are unlikely to change if we instead look two, five or even ten years ahead, or if we substitute almost any good (or service) for milk. Whilst most people aren't economists, they understand intuitively that, all things equal, the lower the price of a good or service, the higher their standard of living (as they have more money left over to spend on other things). And vice versa. Note that even if your income doesn't increase, your standard of living will still rise if prices decline. In fact, your standard of living will still increase if your income declines less than prices. Read full article here: (VIEW LINK)


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