What's so bad about deflation?

Although lower prices may seem like a good thing, deflation can in fact be highly damaging to the economy. Deflation can lead to a vicious circle for the economy since it can drive down spending and investment, which in turn would lead to lower economic growth and higher unemployment.

Is the UK at risk of deflation?

Deflation looms in the UK, and its potential impact on the economy is becoming a growing concern. Recent data shows that in December 2025, UK shop prices saw their sharpest decline in over 3 years, with annual shop price deflation reaching 1%, up from 0.6% in November.

Who benefits from deflation?

During deflation, lenders gain because the money they get back is worth more, while borrowers suffer as they owe more in real terms. It's like lending 5 candies and getting back 7.

How bad is China's deflation?

These unsold goods, combined with a slowing domestic economy, have intensified competition, fueling a deflationary spiral. China's gross domestic product deflator, a broad measure of prices across the economy, has fallen for eight straight quarters — the most prolonged downturn on record.

Is deflation worse than recession?

Not only does deflation signal a stagnating economy, it can lead to high unemployment, unaffordable debt repayment, and dismal outcomes for businesses. In the worst cases, deflation can lead an economy into a recession, or even a depression.

Factories Silent, Homes Worthless – China’s Economic Nightmare

What was the worst case of deflation?

There have been four significant periods of deflation in the United States. The first and most severe was during the depression in 1818–1821 when prices of agricultural commodities declined by almost 50%.

Is bitcoin deflationary?

Mining difficulty has increased substantially[1], and as a result, each new BTC is increasingly expensive, making BTC deflationary. As the overall supply decreases, the intrinsic value of the currency increases, and its purchasing power goes up accordingly.

Why don't banks like inflation?

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

Which country has deflation?

China is a perfect example of an economy with deflation or dangerously low inflation.

Has the UK ever had deflation?

After the inflation of the First World War, the UK experienced deflation (falling prices) during the 1920s and early part of 1930s. This deflation was due to tight monetary and fiscal policy and an overvalued exchange rate (Gold Standard).

Is Britain facing a financial crisis?

After a succession of shocks – from the 2008 financial crisis, to Brexit and the Covid pandemic – the UK's national debt has risen to the highest level as a share of GDP since the 1960s. The return of high inflation and the end of rock-bottom interest rates has made servicing those debts more expensive.

Who does deflation hurt the most?

Many people have some sort of debt, eg a mortgage, a student loan or a credit card. Deflation can make it more expensive to repay your debts because, regardless of the general prices for goods and services, the amount of money you owe remains the same.

Is China rising or declining?

China's economy had a bright start to the year, according to official data, with GDP growing by 1.2% in the first quarter over the previous quarter, and by 5.4% over a year ago. The official growth target for 2025 is around 5%. Exports have been booming for a while and that trend has continued into this year.

Is Germany in deflation?

Germany is on the borderline of deflationary. This is the conclusion reached in a study recently pub- lished by the IMF with the express approval of the IMF's chief economist, Kenneth Rogoff.

Who benefits during deflation?

On its face, deflation benefits consumers because they can purchase more goods and services with the same nominal income over time.

Why does $100 in the future not have the same value as $100 today?

Inflation is the general increase in prices, which means that the value of money depreciates over time as a result of that change in the general level of prices. A dollar in the future will not be able to buy the same value of goods as it does today.

What is the Fisher effect?

The Fisher effect is a theory describing the relationship between real and nominal interest rates, and inflation. The theory states that the nominal rate will adjust to reflect the changes in the inflation rate in order for products and lending avenues to remain competitive.

What is Bitcoin backed by?

Bitcoin is not backed by gold, silver, or government promises. Instead, it draws value from its unique combination of scarcity, utility, decentralization, and trust in the blockchain. This innovative design has made Bitcoin a revolutionary financial technology.

Is gold deflationary?

Historical Patterns in Deflationary Cycles

These historical examples demonstrate that while deflation generally harms most asset classes, gold has often maintained or increased its value during severe deflationary episodes—particularly when accompanied by financial system stress.

Will Ethereum be deflationary?

Perpetual buybacks mean Ethereum is deflationary

Only by 0.137%, but still deflationary. This deflation rate can and will likely increase during the bull market as demand for access to the Ethereum network increases.

What to buy during deflation?

Deflation hedges include investment-grade bonds, defensive stocks (those of consumer goods companies), dividend-paying stocks, and cash. A diversified portfolio that includes both types of investments can provide a measure of protection, regardless of what happens in the economy.

What is hyperinflation?

It refers to a situation where the prices of goods and services rise uncontrollably over a defined period of time. In general, the term is used when the rate of inflation increases at more than 50% a month. Typically, hyperinflation is triggered by a very quick growth in the money supply.

What is deflation for dummies?

Deflation is negative inflation; a decrease in prices. Disinflation is a decrease in the inflation rate; a slowing of price increases.

What country has the best economy?