Global financial markets are awash with fears of deflation, especially after consumer prices fell 0.2 percent in the eurozone last year, the first decline since 2009.
But Peter Schiff, CEO of Euro Pacific Capital, says the concern is misplaced—there's nothing to fear about falling prices.
"The truth is that deflation is not the menace to consumers and businesses that governments would like us to believe,"
he writes on Real Clear Markets.
"Common sense and basic economics tell us that prices fall for two reasons: either an excess of supply or a lack of demand. In both cases falling prices are helpful, not harmful."
Increased productivity over the years has boosted the supply of goods, pushing prices down. "Falling prices made former luxuries affordable to the masses, and in so doing made possible the American middle class," Schiff says.
"Based on data from the Historical Statistics of the United States, the many periods of sustained deflation did not halt American economic growth in the first 150 years of the Republic."
Meanwhile,
Financial Times columnist John Plender is one of those who is worried about deflation.
"This is a fearful world in which geopolitical risk, competitive devaluations and protectionist pressure could bring a descent into intractable deflation and long-depressed yields in the absence of robust policy," he writes.
"The world has been prey to a growing problem of deficient demand, leading to disinflation, while the U.S. has been growing too sedately to spark the inflationary pressures that would have called for much tighter monetary policy."
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