Why are inflation and deflation considered to be economic problems?

Deflation is definitely an economic problem because the lower prices completely impacts the growth of the economy. It will lead to reduced investments, production and lead to more unemployment. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

High rate of inflation is an economic problem because the demand for goods and services will reduce drastically, the buying power of people will reduce massively. Inflation at a healthy rate is good for the country’s economy. The Central Bank – RBI uses various monetary policy instruments to control inflation.

Further readings:

  1. RBI – Know About Reserve Bank of India, Functions, Composition
  2. Monetary Policy Committee (MPC) – An Overview, Instruments of Monetary Policy

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