(p. A2) It’s as close to an economic consensus as you can get: Deflation is bad for an economy, and central bankers should avoid it at all costs.
Then there’s Switzerland, whose steady growth and rock-bottom unemployment is chipping away at that wisdom.
At a time of lively global debate about low inflation and its ill effects, tiny Switzerland–with an economy 4% the size of the U.S.–offers a fascinating counterpoint, with some even pointing to what they call “good deflation.”
Consumer prices in Switzerland have fallen on an annual basis for most of the past four years. They hit a milestone last month with an annual price drop of 1.4%, the biggest in more than five decades. Even after food and energy prices are stripped out, core prices fell 0.7%.
“It’s hard not to call that deflation,” said Jennifer McKeown of Capital Economics, referring to the technical term for a sustained slump in consumer prices.
And yet evidence of deflation’s pernicious side effects–recession, weak employment, rising debt burdens–is pretty much nonexistent in Switzerland. Its economy is expected to expand this year and next, albeit slowly, in the 1% to 1.5% range. Unemployment was just 3.4% in September. Government debt is low.
“Usually people associate deflation with depression,” said Charles Wyplosz, a professor at the Graduate Institute in Geneva. “In the Swiss case, the economy is doing OK.”
For the full commentary, see:
BRIAN BLACKSTONE. “THE OUTLOOK; Switzerland Offers Counterpoint on Deflation’s Ills.” The Wall Street Journal (Mon., Oct. 19, 2015): A2.
(Note: the online version of the commentary has the date Oct. 18, 2015, and the title “THE OUTLOOK; Switzerland Offers Counterpoint on Deflation’s Ills.”)