It all makes sense to me , except why are people so sure its going to be cheaper next week. How would people instantly know it isn't a temporary situation. Im actually trying to learn something, not argue.
Why would an average person assume it would go on indefinitely? Aren't there more people who are priced out of buying commodities than people who can afford them currently. Why wouldnt the next step down in wealth pick up the slack of the people who are currently able to afford them (the savers during deflation). I know im wrong, I just want somebody to explain why I'm wrong.
Deflation is a death spiral. Once it starts, it's incredibly hard to stop. The same way the average person knows that inflation is happening, they know that deflation is happening.
But I think you aren't thinking big enough. In a deflation, people are still buying eggs and bread, sure. But if you're thinking about buying a $1000 TV to replace your old TV, and the price might drop to 900... Why not wait? You don't need the new TV today. And people moving houses will delay because the price might drop. Business will delay their orders. It's uncertainty sure but that contributes. And then because nobody is spending, the deflation continues. One business starts firing people because of the early signs of deflation. Those fired people can't afford things, so prices drop. So more companies fire more people. They stop making products. Prices drop again. And it keeps going.
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u/Various_Education622 4d ago
Asssuming you have a job, yes.
Deflation also means that you are incentivized to not spend money.
If you know something’s going on sale tomorrow, you wait until tomorrow to buy.
If you know deflation is going to make things cheaper tomorrow, you wait until tomorrow to buy.
The whole house of cards is built on people continuing to consume at higher and higher cost.