Should we worry about deflation?

The U.S. just "experienced something it hasn't seen in years," said Patrick Gillespie at CNN: "Deflation." For the first time since October 2009, prices for consumer goods "declined 0.1 percent" in January from a year earlier, according to the Labor Department. "That means it actually cost less to buy things in America this year than it did in January 2014." If you're wondering why that's bad, said Don Lee at the Los Angeles Times, it's simple: Tumbling prices can "wreak havoc on an economy." Deflation "tends to discourage customers from spending as they wait for still lower prices," which drags down corporate profits and wages. Even persistently low inflation can be worrisome when interest rates are particularly low — as they are now — because it gives "borrowers less incentive to borrow."

There's no reason to panic, said Eric Morath at The Wall Street Journal. "Falling consumer prices can be pinpointed to a single sector: energy," with gas prices falling by more than a third over the past year. In fact, if you take energy prices out of the equation, other consumer prices in the U.S. actually jumped 1.9 percent from a year earlier. That figure is even higher for staples, such as food (3.2 percent), shelter (2.9 percent), and medical care (2.3 percent). And when you strip out both fuel and food, which tend to have volatile prices, so-called core inflation is actually pretty "steady": up 0.2 percent last month and 1.6 percent from last January. So while the situation in the U.S. is technically deflation, it's very different "from the downward forces plaguing other major economies," like Japan and the eurozone.

But why do we think deflation is so dangerous anyway? asked Martin Feldstein at Market Watch. "Central bankers justify their concern about low inflation" by blaming the depressive effect on demand, employment, wages, and investment. But "we have relatively little experience with deflation to test the downward-spiral theory," and in our best example, Japan, "low inflation and periods of deflation" haven't prevented incomes from rising. Perhaps deflation is more "bogeyman" than threat, which central bankers rely on to justify "exceptionally generous monetary conditions" or historically low interest rates.

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That's not a risk we should be willing to take, said Anthony Mirhaydari at CBS News. Even if most economists believe our flirtation with deflation will be temporary, "it's important to stay vigilant," because deflation "can smother growth for years." And if the U.S. economy "is weaker than it seems" — and there are signs that it is — a move by the Fed to raise interest rates too soon could just make matters worse. Let's give the Fed a little credit, said Matt Phillips at Quartz. After all, if these figures show anything, it's that the Fed's stimulus since the financial crisis hasn't been the inflation-creating disaster that critics predicted. Ever since the central bank started pumping trillions of dollars into the economy in 2008, "malcontents have been squawking" that this policy would send inflation sky-high. Clearly, those critics "couldn't have been more wrong." So rather than worry, consumers should just relax, and "enjoy the gains in real purchasing power while they've got them."