I have written recently about inflation, and while we try to get inflation down, when prices actually start dropping and getting cheaper each year, it is very bad for the economy.  That is called deflation and Japan has suffered with that for a very long time and it is one of the current words we hear quite often because European economies, as well as America, are terrified of deflation.  

The problem with deflation is that when things get cheaper every month or every six months, people stop buying – why buy now if you can buy it cheaper later?  As they stop buying companies are starting to make less profit and as companies make less profit their employees either get retrenched or no longer get raises because they are in a deflationary environment.  That in turn causes them to spend even less which has a spiralling effect on what is a consumer economy.  The ways governments have typically tackled this is by lowering interest rates but with European and American interest rates close to zero, and Switzerland even at -0,75%, they don’t have many options right now.  That is why around the world they’ve had what they call quantitative easing, when governments have printed more money and tried to get it out there. That is meant to lead to inflation, but for some reason it has not so far and it may be because it does not seem to end up in the hands of the man in the street but is really traded between central banks and finance companies.  The experts don’t seem to have clear answers on whatever works with deflation, but we do know that this is a risk that many countries face at the moment and it means you should never be upset about a slight bit of inflation in your country – because it is good for the economy, it is good for raises and generally it keeps everyone buying and spending.