According to the experts, causes of deflation (สาเหตุ เงินฝืด, which is the term in Thai) occurs when prices fall as a result of decreased demand and excess inventory, which can lead to lower wages and income. Declining prices encourage shoppers to exercise more caution when making purchases during a period of deflation. That’s why you must learn more about the causes, so you can minimize them when starting your own business or increase them if you’re looking to improve your current one. Here are five unavoidable causes and what you can do about them.
Significance Of Inflation
Inflation is an increase in the money supply when there is more money than available goods to buy in a given economy. Many economists argue that inflation is critical to a healthy economy because it helps push prices down, making all products more affordable for consumers.
Like inflation, deflation is a macroeconomic term that describes an ongoing trend in consumer spending over time. In a deflating economy, less money is spent by consumers, which reduces the total amount of goods and services produced.
When market demand for a good or service decreases, we are in a period of demand deflation. During demand deflations, new businesses may find it challenging to gain traction, mainly if their model is dependent on high volumes at low prices to function optimally.
As debt levels rise, people will likely cut back on spending. Many households are currently saddled with high mortgage payments; as a result, many are cutting back on discretionary spending—from entertainment to dinners out—to make ends meet every month.
Loss Of Confidence Deflation
This is a nasty one. It occurs when confidence in a currency or economy plummets, causing prices to fall rapidly due to reduced demand for goods and services. During times of economic downturn, when consumer confidence is at its lowest, this is a regular occurrence. Still, it also affects other investments like bonds and stock markets. This can be caused by a financial crisis or an economic slowdown. Still, even good economic news may cause panic if it’s not as great as anticipated.
Deflation is a rather complicated economic phenomenon, but it’s also important to remember that it’s not always bad news. After all, lower prices tend to lead to greater demand, which encourages more production. Just keep an eye on prices, as falling inflation will ultimately sign that money is losing its value which isn’t suitable for anyone!