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Why do some economists warn about US deflation now?
Economists like David Rosenberg warn about potential deflation due to slowing consumer spending, demographic changes, and reduced immigration. These factors can decrease demand across the economy, leading to falling prices and economic stagnation if not addressed.
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What factors are slowing down consumer spending?
Consumer spending is slowing down because of rising inflation pressures, higher interest rates, and demographic shifts like an aging population. Reduced immigration also means fewer new consumers entering the market, which can weaken overall demand.
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How could demographic shifts impact the economy?
An aging population and lower immigration rates reduce the number of working-age consumers, which can lead to decreased spending and slower economic growth. Over time, these shifts may contribute to a prolonged period of low inflation or even deflation.
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What does this mean for everyday Americans?
If the US enters a deflationary period, prices for goods and services could fall, which might sound good but can also lead to lower wages, higher unemployment, and economic uncertainty. It’s important for consumers to stay informed and plan for potential changes.
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Could the US avoid a deflationary shock?
Policymakers can take steps like adjusting interest rates and implementing fiscal stimulus to prevent deflation. However, ongoing demographic and trade-related challenges make it uncertain whether the US can completely avoid a period of economic slowdown.
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How does this situation compare to Japan or China?
Japan has experienced long-term deflation due to demographic decline, and China faces similar risks with its aging population. The US’s current situation shares some similarities, but the economic context and policy responses differ, making the outcome uncertain.