Firstly, moderate inflation is a sign of a healthy economy.
A certain level of inflation is needed to encourage spending and investment, which can stimulate economic growth.
When prices are rising at a moderate rate, consumers are more likely to buy goods and services because they know that prices will be higher in the future.
This creates demand and encourages businesses to invest in their production capabilities to meet that demand, which creates jobs and leads to further economic growth.
In contrast, deflation can lead to a downward spiral in the economy.
When prices are falling, consumers delay purchases in the hope of getting a better deal in the future, which reduces demand for goods and services.
This can cause businesses to reduce production, cut jobs, and lower wages, which in turn reduces consumer spending even further.
This vicious cycle of falling prices and reduced demand can lead to a recession and long-term economic stagnation.