Deflation vs disinflation.

in #economy12 days ago

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I want people to understand, prices (in general) will never "come back down."

It's the difference between disinflation and deflation. Inflation coming down (disinflation) doesn't lower prices. It slows the rate at which prices rise. For prices in general to come down, we'd need a prolonged period of deflation.

Deflation comes in many forms, but the only good kind is through rapidly rising productivity. That would take some massive innovative breakthroughs that we just haven't seen in awhile.

What you really need to look at is the increase in wages relative to the price level, ie real wage growth. If goods cost X and you make 1.2X, and then the price of goods go up to 1.2X, and your wage goes up to 1.5X, your real wage has grown. You can afford more goods, even though they're more expensive.

But expecting the goods to go from 1.2X back down to X is unrealistic.

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