(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
It’s more about what deflation means about the underlying economy.
Economy wide deflation means that nearly *every* seller of goods and services feels the need to lower prices. Usually, that would mean lower demand across nearly all goods and services. Ie people have stopped buying.
If people have stopped buying economy wide that means two things:
1) Income is being sucked out of the economy. Prices aren’t just going down and incomes are staying the same. Incomes have probably gone down somewhere and consumers are shaken up. Layoffs are increasing.
2) If people are not buying, that means overall GDP goes down (a big part of our economy is consumption). So companies start getting more pessimistic and cut costs.
This results in a vicious cycle where there is more income being sucked out of the economy and consumption falls, there is deflation, etc.
An economy that is deflating *economy wide* means that it is probably sick.
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