(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
Deflation is worse than inflation. With inflation prices go up for products people actually want to buy. They rush to buy them as fast as they can before the price gets any higher. This keeps people employed because the things are still bought. Inflation can often be controlled by limiting the money supply; i.e. raising interest rates. This takes money out of the economy and tends to pull back on inflation.
Deflation is the opposite. Prices are in freefall. This is bad, because “why buy a car today, when it will be less expensive tomorrow?”
Because people stop buying anything other than critical necessities, there is far less need for longer term items such as cars, houses, etc. This means much of that production diminishes or even ceases. This production be hard to restart when things get better. This kills huge amounts of jobs.
Deflation is harder to fix. You can lower interest rates, but there have been cases where governments have actually had negative interest rates. The government would offer banks money at a loss just to get it into circulation to try to jump-start out of deflation.
The great depressions are often correlated with deflation.
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