Article · 06 February 2026
Why Governments Fear Deflation
More than inflation — and with better reason.
That's the inconvenient truth that governments don't always own up to.
Deflation looks like a wonderful thing at first glance: prices fall, money goes further, everybody wins. But here's the hitch — when people anticipate that prices will continue to fall, they stop spending. If it's cheaper tomorrow, why buy today?
Spending slows, businesses cut prices even more, profits plunge, layoff notices go out, and the economy goes into a tailspin.
The real burden of debt is heavier in a period of deflation. Your loan size doesn’t change, but your earnings do.
That's more or less what happened during the Great Depression — not because farmers had borrowed too much, but because plunging prices made it impossible for any farmer to repay.
The really deadly part: monetary policy becomes powerless. Central banks are unable to reduce interest rates much below zero, so they lose their principal weapon.
Japan has spent decades under the fire of deflation with near-zero rates and massive stimulus, and still finds itself in the mire trying to kick-start growth.
Inflation, on the other hand, can be controlled. It passively reduces the burden of debts and keeps money circulating. Deflation freezes the system.
The full article as published.
