Eurozone Deflation

We hear that the Eurozone has fallen further into deflation in January 2015 to the tune of -0.6%, a further slide from -0.2% the month before. Deflation is perceived as an evil, since once people recognise its effect in the economy, they are reluctant to purchase at present in anticipation of cheaper prices in the future. Meaning business comes to a standstill, with resultant economic collapse. Deflation is seen as something like cancer, it has to be stamped out early, before it takes a death grip on the economy.

This appears to be true, but its counterpart inflation, when allowed to run unchecked, leads to increased wage demands to maintain a standard of living, which in turn fuels inflation. The social cost is to those who cannot wage bargain, and whose living standard inevitably deteriorates. Therefore modern economic theory has tended toward moderate inflation as the optimal way to manage an economy, this was reckoned to be the best way to achieve economic growth without overtly damaging inflation. Somehow I remember economic history lessons from my childhood describing how inflation since the Roman times was the scourge of society. What we need as humans is a stable platform on which to plan for the future, without the rug being pulled from under us. One thing that recent history teaches us is that economic growth surges in cycles. We rejoice in the boon times and relent in the recessions. Just perhaps if we aimed for zero inflation with moderate economic growth we might avoid the damaging downturns of the cycles that have afflicted us so far.