The BBC’s Deflation Rational

OK, I’ve seen this one too many times on the BBC now:

Japan Deflation

“Japan has been battling deflation for years.  It has hurt domestic demand as consumers tend to put off purchases in hope of a cheaper deal later on.”

Really?  REALLY?  For a 0.2% drop?  Who are these consumers?

Let’s think about it.  Say I was going to buy a $500 video camera last year, but I keep hearing about this deflation thing and how prices are going to get cheaper, so I put off buying it for a year.  Good thing to, because thanks to deflation that camera now only costs $499.

I can’t believe that anyone does that.  Seriously, if you’ve ever even known someone who put off buying something because they thought deflation would make it cheaper later on post your story in the comments.  I’ll send you a Japanese postcard or something as a prize.

Of course, prices do fall as new models come out.  So actually if I bought that $500 camera a year later it would maybe be only $300, but that has nothing to do with deflation.

Also, I’ve seen other arguments as to why deflation is bad for Japan.  A common one is that companies that export Japanese products would have to raise prices (by 0.2% in this case) in order to keep everything equal to the previous year.  But that is not what the BBC is arguing.  Every time they use this same ‘consumers putting off purchases’ line in their articles, and every time I can’t see any sense or logic at all in it.

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