That's called deflation but I guess since it is so rare we can probably stick to it.
this post was submitted on 03 Jun 2025
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Any economists here? I grew up being told 2% inflation is perfect, more is bad and less is bad. I am fine believing that, but does this mean this is bad news? Or is deflation for a short time good after high inflation?
It's bad - why would you bit something today of its cheaper next week? Not everyone will wait, for sure, but the affect is a significant break on the economy.
why would you bit something today of its cheaper next week
Because I need it? To me it seems we seriously need to speak about asset inflation separately from cost of living and everything else.
To be clear, my understanding is it's bad if it goes on for several quarters/years sort of thing, not bad for happening once.
It's also extremely bad if it's being intentional by the govt, such as the case in China to keep their manufacturing and exports available at low cost to external vendors.
That keeps the population dirt poor and unable to afford a reasonable living.
Not going to buy my groceries today because I can wait a week.
Deflation slows down spending as people wait until things get cheaper. It is good for workers as their pay becomes worth more over time. If you have cash it is good for you, as it becomes worth more over time. However assets with variable pay out like company ownership it is bad. For people with debt it is even worse, as it becomes harder to pay it back.
Basically it is great for the middle class, which have no debt, but a steady save income. Even a mortage will be fine, as it would be a steady payment, while it is much harder for the companies to lower pay. For rich it is a big problem, as the value of the employee pay is going up, while their companies make less money from selling their products and they often have a lot of debt, which needs to be serviced. For the poor with a lot of debt it is a problem as well. Longer term more people saving cash, slows down consumption and investing, which slows down economic growth.
In other words, if you like degrowth it is a great policy.
Thanks I'm always a bit skeptical when it comes to big news corps framing financial stuff like this exactly because it can mean very different things for different people. And since I'm not a big corpo myself, I wonder whether they are right or not when talking about the effects on my personal life especially when the situation isn't very extreme. Sounds like a small deflation for a short time doesn't have to be a bad thing if you're not in (high) debt, just like small inflation isn't a bad thing even if you have some savings.
2% is OK, and for the economy stability is very important, because it makes long term planning and investments more predictable.
But the 2% figure is mostly arbitrary, even -1% is fine too as it generally also means low interest rates., and that makes it extremely cheap to borrow money, sometimes even free. Meaning investments don't have to carry high interest rates to be profitable. Also people are not afraid to borrow to buy a house or car. The only ones that make less money are generally financial institutions.
IMO slight deflation and slightly negative reserve interest rates are best, because that reflects reality of increased efficiency and reduced costs of production better.
That's why the Swiss National Bank will lower the interest rates: to induce inflation.
Itβs good if you have a bunch of money saved, bad if you need to spend money, or are in debt.
Since most people are in the latter camp, it can be dangerous.
Swiss people in general have very little debt.
Only around 40% Swiss households are in debt.
This is the second time that Switzerland faces a negative inflation rate after March 2021.
Something like this is bad if, and only if it persists (which may not happen here). Although a negative inflation increases the purchasing power of consumers, it could soon lead to a delay in consumption (consumers will simply wait for prices to decrease further), which can then delay investments and thus hurt the economy.
For now it seems that there is no reason for panic, though. Many Swiss economists have been expecting that, arguing that the current negative inflation is imported due to a strong Swiss franc (which is what the article seems to suggest) that reduced the price for imported goods. The downward trend was mainly driven by sharper declines in transport prices (-3.7% in May vs -2.6% in April), and in food and non-alcoholic beverages (-0.3% vs -0.8%).
On a monthly basis, the consumer price index inched up 0.1% in May compared to April. The Swiss core inflation (which excludes some volatile items such as food and energy) reached also a new low but remained positive in May at 0.5%, according to the Swiss Federal Statistics Office.
Economic forecasts see the inflation to go further down by the end of the second quarter 2025, and will increase to positive rates for the whole year 2025. But we might soon see negative interest rates in Switzerland for some time due to a strong national currency.
Addition:
There is a Morning Star / Dow Jones report on it:
[Swiss National Bank] Chairman Martin Schlegel has previously said that negative inflation was possible, and didn't rule out negative interest rates. However, he has said the bank wouldn't be guided by individual monthly inflation prints, but rather price stability to decide policy. The SNB expects inflation to average at 0.4% this year ...
Switzerland faces "mild deflation until mid-2026", Pantheon Macroeconomics senior Europe economist Melanie Debono said in a note to clients after the inflation print ... Given May's data, that is "enough for a jumbo cut" to bring the SNB to negative rates this month, she added.
So it could be that I will stand corrected with my statement of a projected positive Swiss inflation for the entire 2025 and we'll see this by mid-2026 as Ms. Debono says (but I like the term "jumbo cut" :-))
I wonder if it would even show if they didn't count fuel prices in the index, because they've been low for months.