Why is deflation worse than inflation?

Deflation is worse than inflation because deflation is an indication that the economy is not growing. The prices of goods and services fall down due to low demand in the market. This results in companies reducing their production which will lead to reduction in employee salaries and layoffs. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

Deflation will impact the economic growth of a country because it will impact the investment, production and employment.

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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