Even 1% deflation will kill a good portion of investment and job creation. It drives up interest rates because the risk of lending money out is less worth it compared to letting it sit, so you have to earn more interest for it to be worth it. This drives up loan rates which means significantly fewer people find it worth it to borrow and start or expand businesses. The job market constantly loses jobs, but without new ones to replace them, people start losing work and then getting scared that they won’t be able to find a new one. It is this environment that causes ordinary people to not spend. It’s because they’re scared of losing their jobs.
Even 1% deflation will kill a good portion of investment and job creation. It drives up interest rates because the risk of lending money out is less worth it compared to letting it sit, so you have to earn more interest for it to be worth it. This drives up loan rates which means significantly fewer people find it worth it to borrow and start or expand businesses. The job market constantly loses jobs, but without new ones to replace them, people start losing work and then getting scared that they won’t be able to find a new one. It is this environment that causes ordinary people to not spend. It’s because they’re scared of losing their jobs.