The Benefits of Deflation: Inflation Be Damned!

Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. It is an increase in the real value of money. It happens when people are scared to spend. When people are not likely to pay out, the demand for goods and services goes down.

The rate of deflation can determine by doing the following:

  • Subtract the price index of the current year (CPI) from the price index of the previous year (CPI).
  • Divide the result by the previous period’s CPI.
  • Multiply the result by 100 to get a percentage.

Deflation Rate = (( CPIc – CPIp ) / CPIc ) * 100

Inflation refers to the rise in the prices of most goods and services of daily or ordinary in use, such as food, clothing, housing, recreation, transport, consumer staples, etc. Inflation measures the average price change in a basket of commodities and services over time. The purchasing power of a currency unit decreases as the commodities and services get dearer. It also impacts the cost of living in a country.

Deflation increases efficiency and lower costs of production.

The right kind of deflation involves lower prices through increased productivity and better technology.

Improved international competitiveness

means If one country has deflation and others have inflation, then that country will become more internationally competitive, leading to a rise in exports.

Deflation hits hard rich people as compared to poor people because in case of deflation value of the majority of assets falls. Rich people hold more credit as compared to poor people and, hence they are at more loss as compared to poor people. It helps in narrowing the gap between rich and poor.

Here are some things we should care about;

Shelter:

In India, Some 77 million Indiansare homeless and, 16 states in 40% of the country homeless make no mention. Here are only 60% who have their own home.

Food:

Food prices, however, continued to be high, with food grains roughly 9% costlier than a year ago, reinforcing a cruel paradox for consumers that they hear about zero inflation but face high prices when they buy their groceries.

Health care:

In India, the allocation for healthcare is merely 2.2% of the Budget. Per capita spending on health in the Budget in India is ₹458 (₹61,398 crore/ 134 crore, which is the population). (Medicare and Medicaid come under ‘mandatory spending’ along with social security.)Benefits said forecast medical trend rate increases to 10 percent in India, while inflation will be at 5 percent.

Tuition Fees:

I know plenty of couples who have delayed having children until they are more financially ready because of the fear of tuition. The irony is, they should have as many children ASAP since the longer they wait, the more their tuitions will go up. It is a crying shame that tuition prices are estimated to double in the next couple of decades, far outstripping wage growth.

Oil and Gas:

Oil is a massive tax on the average consumer. High oil prices make me want to cut down on my trips to Tahoe, spending less money on leisurely activities, thereby reducing the economic activity in the Lake Tahoe region.

Interest Rate:

Yes, a fixed rate of 1.5% would act as a floor, which means that a 1.5% per annum interest rateis guaranteed if there is deflation. Deflation tightens the money supply because there’s an increase in real interest rates, causing consumers to save money. It hinders the revenue growth of firms, causing workers to get paid lower wages or potentially laid off.

Financial Security:

Although deflation means that interest rates are low and that our return on our cash in CDs and Money Markets are, therefore, also less. Verifiable deflation should strengthen the value of our currency vis a vis the things money can buy. Therefore, if people can save more money, we’d be all much better off.

It is particularly beneficial to those on fixed incomes who are not or are no longer wealth creators and rely on the wealth they have already accumulated. Retirees are the prime example. Deflation generally benefits improvised people too. Policies that increase prices attack the well-being of these groups.

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