Deflation: impact of falling prices on the economy

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In addition to knowing what deflation is, an investor needs to understand what inflation and disinflation are. Clear your doubts about these concepts and learn how to invest in different economic scenarios! In the news, it is common to hear about inflation. In June 2023, for example, the Broad Consumer Price Index (IPCA)fell 0.08%, does not constitute inflation, but rather deflation . Do you know what this economic phenomenon is? In this article, understand more about it in detail, its causes, differences to other concepts and how to invest within this scenario. Keep reading! What is deflation? Deflation is the continuous drop in the cost of products and services. In other words, it is the opposite of inflation. Although deflation may seem like a good thing for a country's economy, it also brings problems. This is because if prices are cheaper every day, companies and families may decide to postpone their consumption decisions andinvestment.

Inflation, in turn, is the continuous increase in the cost of products and services. There are different reasons for this such as: demand pressures; cost pressures; inflationary inertia; inflation expectations. How much do you need to retire on R$15,000.00 per month? Receive the FREE report Brother cell phone list in your email. Your email ACCESS NOW What is the difference between inflation and disinflation? In addition to inflation and deflation, there is disinflation. In disinflation, there is also an increase in the price of products and services, however, it is lower than the expected value . How is deflation calculated? Just like inflation, deflation is calculated by indices that measure price changes. The main one is the IPCA, the official inflation index in Brazil. Since 1980, the monthly calculation of this metric has been carried out by the Brazilian Institute of Geography and Statistics ( IBGE ). What does the IPCA measure? The IPCA measures monthly the variation in the values ​​of a basket of products and services for a family that has a monthly income between one and 40 minimum wages. To give you an idea, there are 377 items divided into nine groups.



The main cause of deflation is the increase in the supply of products and services without demand being matched. The reduced amount of currency in circulation also causes deflation . After all, less money means having a smaller number of consumers available. Again, this will have effects on both consumption and production. What are the advantages of deflation? The advantages of deflation for the economy are: decrease in prices of products and services; higher income from the worker's salary. What are the disadvantages of deflation? Contrary to what many think, the phenomenon of deflation also has disadvantages for society, such as: slowdown in the economy; growth in unemployment; reduction in production and company profits. What are the effects of deflation on the economy? Immediately, among the effects of deflation, there is a tendency for product prices to fall as the level of supply exceeds demand. This way, when a person maintains their income level, they are able to make better use of their own resources on a daily basis. In short, it's as if your salary yields more. In the long term, however, this phenomenon can cause problems.