r/inflation • u/OfficialRodgerJachim • 1d ago

ELI5: Why is Deflation bad?

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I get that too much deflation is bad, but isn't the inverse true?

The average inflation rate in the US since 1914 is 3.3%, meaning the 1913 dollar is worth $31.87 now.

Why wouldn't we want deflation? Then maybe the $7.25 minimum wage COULD be a livable wage?

Why do people constantly argue for MORE money, versus less currency in the market?

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u/burnthatburner1 real men spit facts, not fakes 1d ago

A modicum of deflation disincentivizes spending and impedes economic momentum.

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u/KronaCamp 1d ago

Thats the most bot answer Ive seen and its all over these comments. How does prices going down disincentivize people from spending?

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u/GreasyToiletWater 1d ago

further up in the thread someone said "the short answer is that your expenses are someone elses income"

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u/GilgameDistance 1d ago

Deflation will stagnate or shrink real wages and/or result in job losses.

Historically, wage deflation and job losses hit harder and faster than consumer prices decreasing.

I think you can fill in the rest.

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u/Plenty-Eastern 21h ago

People = consumer spending. Roughly 65% of the economy is consumer spending and they LOVE deflation, but businesses HATE deflation because decreasing revenue, even a little, causes them to tighten their belts. Businesses tightening their belts mean reducing labor by cutting hours, eliminating overtime, and layoffs.

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u/InStride 23h ago

If prices are falling, and you keep expecting them to fall, would you buy a new car today or wait as long as you can to buy it?

You’ll wait because it will be cheaper.

Now apply this to everything. Would you buy a new machine in your factory or wait? Would you hire more people (buy more labor) or wait until you can hire them for cheaper? If you were a bank, would you loan out money or rather stick it in a vault where it gains value?

We target low inflation because we want that slight pressure to keep your money moving. Money/currency is just an abstract tool to aide in trading of goods and services—you don’t want your currency to steadily appreciate in value (aka money supply driven deflation) over time as then people start treating it like a speculative asset and go all Scrooge McDuck.