Which is Better: Inflation or Deflation?

By BYJU'S Exam Prep

Updated on: November 9th, 2023

Inflation is preferable to Deflation. While reasonable inflation levels promote economic growth by encouraging greater investments, production, and employment, deflation destroys the economy. One of the Reasons Why Inflation is Better than Deflation is Inflation is a quantitative indicator of how quickly prices rise in an economy.

Reasons Why Inflation is Better than Deflation

When price increases for products and services, it is referred to as inflation, whereas price decreases are referred to as deflation. The delicate balance between these two opposing economic circumstances, two sides of the same coin, makes it possible for an economy to go from one to the other quickly.

Central banks keep a close eye on the magnitude of price changes because they use monetary policy tools like changing interest rates to fight deflation or inflation.

Inflation and Deflation

  • Inflation happens when there is a high demand for goods and services, which makes them harder to come by.
  • A decrease in supplies can result from various factors, such as natural disasters that destroy food crops and housing booms that exhaust building materials.
  • Whatever the reason, rising consumer demand for the goods and services they require results in higher prices for both goods and services.
  • Inflation is the term used to describe a rise in the average price of goods and services within an economy.
  • Conversely, deflation is the overall price reduction for goods and services, denoted by an inflation rate below 0%.
  • Depending on the underlying causes and the rate of price fluctuations, either one could be negative for the economy.


Which is Better: Inflation or Deflation?

Deflation is to be avoided at all costs as it kills the economy, while moderate inflation levels encourage economic growth by boosting investments, production, and employment.

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