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Deflation
Wirtschaftab 13 J.
The opposite of inflation: prices fall over a longer period. Sounds good, but it's dangerous – companies earn less and lay off staff.
Deflation is a sustained fall in the price level. At first glance that sounds good – everything gets cheaper! But in reality deflation is more dangerous than moderate inflation.
Why? When prices fall, consumers put off purchases ("it'll be even cheaper tomorrow"). Companies sell less, earn less, have to save and lay off staff. The laid-off workers consume even less. A downward spiral develops.
Japan has been struggling with deflation and economic stagnation since the 1990s – a cautionary example.
Did you know? Japan experienced deflation for over 30 years (1990–2020). Its stock market took 34 years to return to its 1989 high. Deflation can be worse than inflation.
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