Is there any evidence that modest deflation actually causes this "holding pattern" in the overall economy? I see this theory stated a lot for the reason that deflation is bad, and it definitely checks out on a basic logical level. But economics is complex right? So I'm curious what the evidence is in the real world.
I can imagine this happening with large deflation (10%, say), but what about 2% or 1%? It's not obvious to me that people would not buy a TV they really wanted if they knew it would be $392 instead of $400 next year. If consumers actually acted this sensitively toward a drop in prices, then wouldn't nearly all consumers wait for sales for all purchases? But we know that is not the case. Hell, if consumers were this sensitive toward their finances, they certainly wouldn't pay lots of interest on avoidable credit card debt, right?
I can imagine this happening with large deflation (10%, say), but what about 2% or 1%? It's not obvious to me that people would not buy a TV they really wanted if they knew it would be $392 instead of $400 next year. If consumers actually acted this sensitively toward a drop in prices, then wouldn't nearly all consumers wait for sales for all purchases? But we know that is not the case. Hell, if consumers were this sensitive toward their finances, they certainly wouldn't pay lots of interest on avoidable credit card debt, right?