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Difference Between Inflation and Deflation

Inflation vs Deflation

Inflation and deflation are two sides of the same coin. Inflation is defined as a phenomenon wherein the general prices of goods and services rise fast. Other economic experts define it as a sustained price increase of the majority of goods while others say that it is a situation wherein the money’s value is falling or rapidly deteriorating.

Being at the opposite end, deflation happens when prices are generally falling. Deflation occurs when the community’s spending does not match with their output value at the current prices. As a result, there is a moment of imbalance wherein the money’s value rises up along with the falling prices of goods and services. It also leads to more unemployment, income and output.

In terms of what phenomenon is deemed more severe, experts and economists regard inflation as the lesser evil. It is evil in the sense that it favors the rich and those who have huge profiting potentials like the businessmen, of course at the expense of the poorer sector (the ordinary consumers and regular wage earners). Inflation also has redistributive effects that widen the gap between the low and high-income groups. This means that the rich become richer while the poor become poorer. It removes wealth from some and transfers it to other people without consideration of equity. Inflation is responsible for degrading social ethics as it disrupts public morale and makes an artificial illusion of prosperity which is just temporary, unfortunately.

Deflation is more evil as it affects marginal capital efficiency. Investments and employment both tumble as a result. Because of falling prices, income is greatly reduced. So contracting companies will no longer have enough money to pay for their workers resulting in laying them off. That’s why even if the prices of goods and services drop dramatically, the majority of the public still won’t be able to buy them because of a lower purchasing power. Eventually, the demand for these commodities declines sharply – a scenario that is unhealthy for the largest number of people.

Summary:

1.Inflation is the speedy and general rise of the prices of goods and services.
2.Deflation is the falling of prices.
3.Inflation is good for capitalists. They become richer while the poor masses become poorer.
4.Inflation does not contribute to a reduction in national income.
5.Deflation decreases productivity, output and income; that’s why unemployment is also a serious effect in the long run.
6.Inflation can stimulate economic growth while deflation is bad for the economy as it decreases investment and contributes to a pessimistic business sector.


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