Everyone seems to be missing the most dangerous part of deflation: If prices fall year over year, collateralize credit becomes incredibly unstable. If you borrow a million dollars from the bank to build a house and then in five years that house is worth half a million...well you would be stupid not to walk away for your loan and leave the bank with a half million dollar hole in its balance sheet. If the whole market does this consistently year after year then banking becomes impossible and the whole system collapses. Weve had this happen before, such as during the Great Depression and very briefly during other market crashes like in 2008. If a central bank has to choose between inflation and deflation, they will choose inflation every time.

Central banks have a target inflation of about 2% and actively try to prevent deflation (much more so than inflation). In general moderate inflation is a good thing as it puts some pressure on keeping the money in circulation instead of hording it.

Deflation discourages spending at all levels, because why spend right now when your cash will be worth more later? This kills any economy.

In 3 words: printer goes brrrr

Tldr our economy is designed this way. The federal bank sets monetary policy to maintain inflation.

I just took an econ-102 course intro to macroeconomics that covers this. It was free at my community college. I recommend doing it!

Because our monetary supply is controlled by an entity that can print new money but doesn’t have any good way to take money out of circulation.

More than 90% of the money we use does not come from the central banks, i.e. does not exist as cash and is not backed by the government directly. Instead it is book money. Here is how this works:

When a bank lends you $1000 at 10% interest for a year, they don't physically have that money. Instead, they write into your account: We owe you $1000. They also write into their account: Skaterboy42069 owes us $1100.

See how the $1000 you have in your account just appeared out of nowhere? They are of course balanced by the bank's $1000, but there is an extra $100 (the interest) that was created permanently. It's up to you to come up with a way of making those extra $100 in one year. Now apply that to the entire monetary system and the whole economy, and you see how the only way is up.

As an aside: This is also precisely the reason why we need ~2% GDP growth annually, and any standstill or even shrinking is an absolute disaster. Debts don't get repaid and are defaulted on, and money literally evaporates. Ask yourself this: imagine GDP drops 10% over night and what that would do to the economy. Why would that be such a disaster if it would simply send us back to about 2018 GDP-wise (when we all lived in caves)?

This is because inflation isn't a bug it's a feature.

Anything that transfers wealth up the chain, from working class to middle class and from middle class to upper class, is a feature of the western economic system.

For example, in England and Wales the Bank of England is charged with keeping inflation at a target of around two per cent. This means that the pound in a workers pocket is supposed to devalue. The advantage is that the government borrows money in its own currency so inflation means that its debt goes down (in real terms) when inflation goes up.

hints :

• inflation increases the nominal amount of tax on added value, good for countries balance sheets
• inflation decreases the real value of sovereign debts
• a company will never lower its prices as long as sales do not plunge
• energy actors only look at natural gas prices when it raises, never when it comes down

you could add your own items to the list, it's a long one.

Inflation occurs when the value of goods increase. This can mainly be caused by two things: An increase in consumption or an increase of production costs, which causes the vendor to increase prices in order to maintain profits.

Deflation would occur when the opposite happens, aka when the value of goods decrease. This can be caused by things such as new technological improvements (old hardware has become cheaper, because new hardware has been released and the older hardware is no longer state-of-the-art), a reduction in consumption or a reduction in production costs. Perhaps I've missed a few cases, but these are the main things I can currently think of.

Anyway, while deflation is generally useful for consumers (they have to pay less), it's not very good for borrowers. Let's take a mortgage for a house, for example. You want to buy a house for €200k and have a mortgage of €200k that will cover the house. If something bad happens to you financially (for example, you lose your job), you may end up in a situation where you'll no longer be able to pay off your mortgage. Shit happens right? Usually, the bank would take control of your house, sell your house for €200k and use the revenue from the house to pay off your mortgage.

However, if deflation has occurred and your house is no longer worth €200k, but €150k, you still have €50k to pay off to your bank, after the bank has sold your house. Simultaneously, you're unemployed, so how are you going to do that? If you declare bankruptcy, you will no longer have to pay off your debts and the bank has lost €50k.

Besides this, deflation can also be a symptom of something worse happening, such as high unemployment rates and a decrease in consumption, for example. When more people get unemployed, people will spend less, which reduces demand, which leads to a decrease of prices.

Inflation (of the supply of money in circulation) is caused by an increase in the supply of money in circulation. As the number of US dollars in circulation increases, inflation (of the money supply) is experienced.

We experience inflation instead of deflation because the ones who control the supply of money have chosen it.

And while many commenters are defending inflation as good and necessary, there is an argument that inflation punishes individuals who save or are on fixed income. Inflation of money supply is also described as "devaluation of currency"- it is becoming less valuable over time. Inflation could also be described by a "loss of purchasing power" which means a person can buy fewer goods and services with the same amount of money as the currency loses its value.

A few good comments and quite a few... not so good. A lot of explanations that focus on 2nd order, downstream effects and the machinations of economists and politicians. Price is one of myriad ways to measure the past & current state of the economy and to make guesses about its future.

"Inflation" is what we call it when it costs $1.00 to buy a dozen eggs last year and $1.10 to buy a dozen of the same eggs this year. "Deflation"is what we call it if the price goes down to $0.90 this year. Just to set some terminology.

No one person or group or policy or activity causes inflation or deflation. It's just a measure of buying power.

But there is one key difference between inflation and deflation: the latter has a limit. Prices can go up forever, but they can only go down to $0.

So when all the people are trying to craft policies that influence the economy, they don't want the economy to go in the direction of the brick wall of $0 prices.

It's probably the case that inflation is the only thing that can happen and have a functioning economy over the long term. If that's the case, then keeping it low is the best approach, which is why the American economic establishment has a target of 2% inflation.

Because capitalism = cancer. It survives on endless growth. it hates retraction, even if the host survives longer.

So they print money and target inflation. They take actions that MAKE it so things never deflate.

Because once a corporation increases prices due to "supply and demand" or whatever bullshit reason they make up that week, those prices never go back down if the reason changes. conveniently.

Every corporation will say "we need to increase the price on "x" because the primary supplier in Bolivia is facing economic turmoil...blah blah blah." But once that turmoil is over and supply returns to normal, they don't bother taking the prices back down and rely on the fact that modern society is too distracted by their "conveniences" to care.

"The people will not revolt. They will not look up from their screens." -- a stage play based on George Orwell's 1984

They (the super-rich) have created a class of people beneath them who don't notice or care that they're being fucked over so long as they are provided with more and more vapid content to consume.