Deflation is “bad” because it leads to an economic death spiral, and there’s no way to stop it.
Prices go down
People see prices going down and hold on to money thinking it’ll be cheaper if they wait.
Less purchasing despite lower prices cuts profit margins, so producers produce less.
Sellers lower prices more in a desperate attempt to make SOME money.
Repeat.
This usually leads to layoffs to try to salvage money, big sales to get rid of inventory, then eventually there’s nothing to buy, no one making it, and everyone loses their job.
Interest rates don’t fix it, taxes don’t fix it, you just cross your fingers and hold onto your butts
What happens is that you buy the bare minimum as opposed to what you would usually buy.
See my other comment when it comes to gas prices. Instead of filling up right now you will delay until you absolutely need it. Even then you might not fill up because it can get cheaper later.
Or buying a house: if prices are falling you would wait. If prices are soaring, you buy as soon as you can
People will definitely buy more than usual if the price drop down because they could finally buy it.
If grocery prices go down, people won't suddenly stop doing grocery. They will go at it even more than before because now they can buy what they wanted to buy but couldn't afford
There is an initial surge when this happens, and your right that falling prices see a boost, but what follows is that labor is cut to increase profit margins and spending decreases. Suddenly work is hard to find and you need to stretch every dollar and prices are going down. So you cut things down to the essentials, but work is still hard to find because no one is hiring when profit margins are uncertain
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u/EM3YT 8h ago
Deflation is “bad” because it leads to an economic death spiral, and there’s no way to stop it.
Repeat.
This usually leads to layoffs to try to salvage money, big sales to get rid of inventory, then eventually there’s nothing to buy, no one making it, and everyone loses their job.
Interest rates don’t fix it, taxes don’t fix it, you just cross your fingers and hold onto your butts