(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 bad for a few reasons:
– If people think prices will go down in the future, they put off spending today. This causes a slowdown in economic activity as sales fall, companies lay people off, those people have no choice but to spend less and sales fall further, and it becomes a vicious downward spiral of recession.
– If people think their money will already be worth more in the future, they have less incentive to invest it, put it into a savings account or CD, etc. meaning that banks have less money to lend to home buyers, car buyers, businesses. Businesses wanting to go public have less demand for shares making it harder to raise capital to expand.
– If prices fall, so too will wages. And that’s demoralizing to workers to see their pay go down instead of up. There’s a psychological benefit to seeing pay go up, even if it doesn’t translate to buying power due to inflation.
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