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Too-low inflation slowing world economy

WASHINGTON — Since the Great Recession ended 4½ years ago, Americans have struggled with high unemployment, static pay, and a slow economy. Yet they have had one thing in their favor: low inflation.

Well, hold the applause.

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It might be unfathomable to people who still bear scars from the double-digit inflation of the 1970s, but what the global economy could use right now is a dose of higher prices.

Overall prices are barely budging because the economy is still weak. And the reverse may be true, too: Super-low inflation has probably slowed growth from the United States to Japan to Europe. It’s why the world’s central banks would like prices to rise.

Most people aren’t likely to work up much anxiety about low inflation. After all, the benefits can be great. Cellphone service has gotten cheaper. Breakfast cereal prices have dropped the past two years. So has the cost of bedroom furniture. Television prices have plummeted 29 percent since 2012.

And low inflation is surely preferable to runaway inflation. Back in 1980, US inflation reached 13.5 percent.

Last year, overall US prices inched up just 1.1 percent, according to the Federal Reserve’s preferred gauge. Inflation has stayed below the Fed’s 2 percent target for two years.

On Wednesday, the government said its producer price index, which tracks prices before they reach consumers, had risen just 1.2 percent over the past 12 months.

Yet Ben Bernanke, the just-departed Fed chairman, has said policy makers worry as much when inflation is too low as when it’s too high.

What’s wrong with very low inflation?

Lots. When prices barely move, many people postpone purchases. Why rush, if the same price — or lower — will be available in six months? Collectively, these delays slow consumer spending, the economy’s main fuel.

Ultra-low inflation also makes the inflation-adjusted cost of a loan more expensive.

And too-low inflation raises the prospect of something worse: deflation — a broad decline in prices, pay, and the value of stocks, homes, or other assets.

Deflation can further restrain spending and even tip an economy into recession.

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