What is good and bad Inflation and Deflation rate ?
|I would like to ask what Infaltion and Deflation rate is considered as good / bad. Is better for a country to have high or low inflation ?|
|In economic theory, there are more types of inflation:|
Some sources may use different sorting of inflation rates. Usually it is good for a country to have low inflation, what means that price level is rising gently, so inflation is under control. Higher inflation rate may cause difficulties to a country. When inflation rate is too high, it can be even dangerous for an economy. Hyperinflation may be described as out-of-control price level increasing, what may result into collapse of monetary system, because of the continuous fall in the purchasing power of money.
Countries with higher GDP growth may have a walking inflation, but because of GDP growth the inflation is not causing them a serious problems.
For economy and business environment it is better to have inflation rather than deflation. According to many economists, the optimal inflation rate is 2%. In general the inflation benefits borrowers and hurts lenders, because it reduces the value of the money.
Deflation occurs when the price level falls below 0%. Sometimes it is called as negative rate of inflation. The deflation is common during and after an economic crisis. Long-term deflation is often not good for economy. It increases the real value of debts and it can lead into economic stagnation.