By Terry Savage on June 22, 2020 | Taxes & Economy

I have heard the term deflation many times over the years, never in a good way. What exactly is deflation, and should it ever occur how would it adversely effect our well being?

Terry Says

Deflation (the opposite of inflation) is generally defined as falling prices. We’ve seen that recently in energy prices (although they have since rebounded). Falling prices seems like a good idea — especially for food, clothing, energy, healthcare (if that ever happened!) or anything we want to buy. But prices fall because of lack of demand. And that lack of demand could mean that either people are scared to shop or don’t have the money to spend. And then if no one is buying, businesses have to lay off workers or employees. Which leads to fewer people with money to spend!
So while deflation may seem like a good idea if you’re a buyer of goods and services, it can really hurt an economy. Not to mention that if you owe a lot of debt, it is harder to get the money to repay that debt. Hope this short explanation helps.



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