Quick Answer: What Happens When Inflation Decreases?

Lower inflation from lower costs

If we have lower inflation from a fall in costs of production (e.g.

lower oil prices) then this tends to be very beneficial – we get lower prices, but also rising GDP.

Consumers have more discretionary income to spend because travel is cheaper.

Is a decrease in inflation good or bad?

When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. And the higher inflation gets, the less chance there is that savers will see any real return on their money.

What does a decrease in inflation mean?

By Investopedia. Updated Jan 29, 2018. Deflation, or negative inflation, happens when prices fall because the supply of goods is higher than the demand for those goods. This is usually because of a reduction in money, credit or consumer spending.

Can inflation decrease?

Inflation can also occur when the economy ‘overheats’ because of excess aggregate demand (this is called demand-pull inflation). The causes of disinflation are the opposite, either a decrease in the growth rate of the money supply, or a business cycle contraction (recession).

Why is it bad if inflation is too low?

It makes it less likely that the economy will fall into deflation, something that many economists say is far worse because it keeps people from wanting to spend. A higher inflation rate, on the other hand, suggests that the economy could be overheating. It may also reduce your purchasing ability.