It's not just the prices going down, it's the expectation they will keep going down.
Think of it like this: You want to buy a car but no need to buy it today because you expect that tomorrow it will be cheaper. Tomorrow you put off buying it again becuse you expect it will be cheaper the following day and so on and so on, so you never actually buy the car. Everyone is following the same expectation so no one buys a car or a phone or anything else.
Everyone's daily consumption of even groceries becomes the minimum because there's no need to buy that fancy bar of chocolate today because you expect it will be cheaper tommorrow.
So Demand sharply decreases and production (Supply) and profit margins with it. Lower Supply means downsizing industry so fewer jobs/consumer wealth which further decreases any Demand that was left.
Negative inflation causes a feedback loop that can spiral really fast and crash an economy due to lack of "economic momentum" like the engine metaphor from IrksomFlotsom.
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u/TheScarMaker 5h ago
It's not just the prices going down, it's the expectation they will keep going down.
Think of it like this: You want to buy a car but no need to buy it today because you expect that tomorrow it will be cheaper. Tomorrow you put off buying it again becuse you expect it will be cheaper the following day and so on and so on, so you never actually buy the car. Everyone is following the same expectation so no one buys a car or a phone or anything else.
Everyone's daily consumption of even groceries becomes the minimum because there's no need to buy that fancy bar of chocolate today because you expect it will be cheaper tommorrow.
So Demand sharply decreases and production (Supply) and profit margins with it. Lower Supply means downsizing industry so fewer jobs/consumer wealth which further decreases any Demand that was left.
Negative inflation causes a feedback loop that can spiral really fast and crash an economy due to lack of "economic momentum" like the engine metaphor from IrksomFlotsom.
Inflation at ~2% good, ~1% eyebrow raising, ~0% alarming, negative% bad.