Deflation

Deflation

  • Deflation is falling prices of commodities in a lasting and continuous manner
  • Deflation is the opposite of inflation where prices go on soaring relentlessly with no signs of taking the reverse route.
  • Deflation gives the money in the hands of the consumers more purchasing value.
  • Wage reduction is a feature of deflation. In other words, employees have lesser purchasing ability.
  • Deflation increases unemployment as the employers resort to large scale retrenchment occasioned by reduced consumption and production.
  • Market sees less money circulation.
  • Industry and business see less money infusion.
  • Banks and financing institutions search for borrowers and the funds lent by them are always going to be less due to the rising intrinsic value of money.
  • Industry and business become sick because of lesser demands for products.
  • Banks get less money for lending purposes.
  • Value of real assets and liquid assets like gold, diamonds, etc. Decline rendering it difficult to dispose them off.
  • If money circulation remains static and population goes on increasing, the per capita share of money becomes less, but more valuable.
  • A deflationary situation sees interest rate cut in deposits and advances.
  • The central government of a country may come forward to reduce corporate and individual taxation so as to make more money available in the market for industry and business to make some headway.
  • Government spending should increase on infrastructure, health care and education particularly and in all other public and corporate-interest areas selectively.
  • The last two points are my suggestions, but those may not be construed as remedies as they may or may not work.
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