(I’m American) Inflation is the rising cost of goods and services. Inflation constantly goes up by varying degrees. When economists say “inflation is decreasing”, that just means that the rate of inflation has slowed, not that inflation reversed.
If inflation is causing money to be less valuable over time, why would it be bad to have deflation? Would that not make my money more valuable? I’ve been told it would be very bad, but not in a way that I understand
In: Economics
Most people will give you an explanation framed from a macroeconomic perspective. I thought it would also help to give a more personal perspective.
Deflation means your money becomes more valuable over time: it takes less money to buy comparable goods.
For most goods and services, businesses would try to compensate to balance things out so that the time it took you to earn enough to buy something stays about the same. So things might cost less, but you’re also being paid less.
But not everyone can do that. Most notably, when it comes to debt or other fixed cost agreements, you’re still on the hook for the agreed upon amount.
Deflation is thus bad for debtors. You’re making less money, but your debt is staying the same. It would be like paying today’s price, but on your grandparents’ wages.
Conversely, inflation is good for debtors because that’s like getting paid today’s wages to pay your grandparents’ mortgage.
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