Deflation is when the value of the money in your wallet rises. But, is that something to celebrate? On the face of it, it might look and sound so, but the answer is a firm ‘No’.
Deflation is a devil in disguise, out to floor businesses and takes away jobs; stunt growth and halt development. It deflates.
The other day, the International Monetary Fund said that what we are seeing and experiencing these days of financial crunch and downturn is the ‘world in great recession’. What it didn’t say was that if deflation comes it could very well be a ‘world in great depression’, a throwback to the horrors of the depressing 1930s.
Actually, what we are seeing right now in India is ‘disinflation’ ( or falling inflation). Prices are rising but not by as much as in the period before. It is still an increase in prices, but at a decelerating rate.
Deflation is when prices actually starting decreasing, goes into the negative after touching zero. It also means that the value of the rupee will increase; money will become more valuable from one period to the next; its purchasing power increases.
What makes deflation bad is the relationship between consumer spending and employment. When prices fall, employers will cut salaries and resort to layoffs. When salaries are cut and workers are laid off, the result is less spending and a further fall in prices… a never ending spiral with devastating implications.
A side-effect is the increasing value of debt. Imagine the fate of EMI on loans when jobs are cut. The mortgage company takes procession of the asset (car or home) leaving the individual with nothing.
Deflation is a devil in disguise, out to floor businesses and takes away jobs; stunt growth and halt development. It deflates.
The other day, the International Monetary Fund said that what we are seeing and experiencing these days of financial crunch and downturn is the ‘world in great recession’. What it didn’t say was that if deflation comes it could very well be a ‘world in great depression’, a throwback to the horrors of the depressing 1930s.
Actually, what we are seeing right now in India is ‘disinflation’ ( or falling inflation). Prices are rising but not by as much as in the period before. It is still an increase in prices, but at a decelerating rate.
Deflation is when prices actually starting decreasing, goes into the negative after touching zero. It also means that the value of the rupee will increase; money will become more valuable from one period to the next; its purchasing power increases.
What makes deflation bad is the relationship between consumer spending and employment. When prices fall, employers will cut salaries and resort to layoffs. When salaries are cut and workers are laid off, the result is less spending and a further fall in prices… a never ending spiral with devastating implications.
A side-effect is the increasing value of debt. Imagine the fate of EMI on loans when jobs are cut. The mortgage company takes procession of the asset (car or home) leaving the individual with nothing.
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