[jallmann]

I thought the same, too. Generally some small amount of inflation is preferable to encourage spending, rather than deflation which discourages it.

If you know a $100 item will probably cost $102 later then you're more likely to buy it now. But if that item will cost $98 in a deflationary environment, then maybe you'll wait to buy it later. Wages also tend to fall in deflation, which makes it harder to pay back debt, so lending slows down - people won't buy houses or cars, etc. Businesses hold back on capital spending. The economy slows to a standstill: if no one is spending money, how can anyone make money?

[indoordin0saur]

I think its more important for investment. If you have $1mil in cash and know it's losing value every day you have an incentive to invest it in some long-term profitable way. Hire more employees, buy some more trucks for your fleet, renovate your store, do some R&D to improve your product, etc. If it's the opposite you don't feel any urgency because your $1mil is gaining value as it sits in the bank.

[Dylan16807]

This is true for investment-level amounts of money and larger percentages, but much less true for everyday purchases and small percentages. For buying a thing, a year of ownership is much more valuable than saving 2%. Look at the computer industry where waiting a year or two almost always gets you significantly better hardware but that doesn't stop people from buying new ones often.

And debts adjust their rates along with inflation/deflation so that effect ends up much smaller.

As for houses and cars, we desperately need to make the economy less focused on the value of houses and cars...

[Root_Denied]

Velocity of Money is the term to look into. Governments also like it because as money circulates it generates tax revenue through sales tax/VAT.