Both economic states can be positive or negative depending on the extreme to which they reach.Ĭontinuous inflation or deflation left unchecked can wound the economy. Is deflation worse than inflation?Įverything in moderation. Repaying debt on credit cards and mortgages also can become more of a challenge during a period of deflation as technically the money being paid back is now worth more than when they borrowed it. Lower consumer spending pushes companies to cut wages, and then people buy even less and prices continue to drop. If consumers see that prices are falling, they may be more likely to put off purchases to see if goods and services become even cheaper. ![]() Like inflation, deflation can be cyclical. Essentially, it’s a pattern of goods getting less expensive as consumer demand falls. Intuitively, it’s the opposite of inflation. But it does raise the question: Can prices actually fall? And would that be a good thing? Here’s a quick rundown: What is deflation?ĭeflation is the term economists use for a sustained period of dropping prices. ![]() ![]() It just means that already-high prices are rising more slowly than they did previously, giving shoppers a bit of a break. When the Fed meets to discuss how much inflation has come down, it doesn't mean prices are falling. While most Americans just want to know how much a carton of eggs is going to cost, economists have a whole vocabulary for how to predict that statistic. Inflation versus deflation? Bull market versus bear market? The economy is confusing enough for the average person without all the jargon.
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