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A deflationary spiral is an event of a decrease in the price of goods and services that occurs repeatedly with quite complex causes. Deflation is usually caused by a sluggish country's economy, so the demand for goods and services will decrease.
Of course, with a weakening level of demand, it will make the prices of goods such as food, clothes, electronic goods, and others, as well as the prices of services such as cleaning services, property rental, lawn mowing, and others, will decrease.
Prices that decrease or become cheaper will have an impact on producers or service providers who will adjust to various aspects of their production. The most common example is the company will tend to reduce the number of employees because of low prices.
Business income will also decrease which will influence the provision of wages to employees. Now the employees themselves are essentially people who also need to meet the needs of their lives and their families and dependents.
This is an illustration of how a deflationary spiral can form and is difficult for countries in the world to anticipate. Even countries like the United States have had to try hard to get out of the spiral of deflation before and after the great depression of 1929 - 1930. For nearly a decade these were dark times for the US economy.
Another example of a deflationary spiral is what happened in Japan, even the cherry blossom country was stuck for about 30 years. In the case of the deflationary spiral experienced by Japan, this was ignited by the occurrence of a property asset price bubble. This has put Japan in an acute deflationary circle since the 1990s.
This has also been implemented by the Indonesian government when it was hit by a recession due to the Covid-19 outbreak. The poor and victims of layoffs received assistance in the form of stimulus, business actors received various waivers such as delaying debt payments to low-interest loans that enabled them to hire more employees. And as a result, in the fourth quarter of 2021, the economy has started to improve, marked by price inflation.
Of course, with a weakening level of demand, it will make the prices of goods such as food, clothes, electronic goods, and others, as well as the prices of services such as cleaning services, property rental, lawn mowing, and others, will decrease.
Prices that decrease or become cheaper will have an impact on producers or service providers who will adjust to various aspects of their production. The most common example is the company will tend to reduce the number of employees because of low prices.
Business income will also decrease which will influence the provision of wages to employees. Now the employees themselves are essentially people who also need to meet the needs of their lives and their families and dependents.
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| Image by mohamed Hassan from Pixabay |
Causes of Spiral Deflation
The wages received have decreased or decreased, which of course has a direct impact on their purchasing power for goods and services. Especially if the employee is the one affected by the termination of employment, which will automatically lose income and drastically reduce the demand for goods and services.This is an illustration of how a deflationary spiral can form and is difficult for countries in the world to anticipate. Even countries like the United States have had to try hard to get out of the spiral of deflation before and after the great depression of 1929 - 1930. For nearly a decade these were dark times for the US economy.
Another example of a deflationary spiral is what happened in Japan, even the cherry blossom country was stuck for about 30 years. In the case of the deflationary spiral experienced by Japan, this was ignited by the occurrence of a property asset price bubble. This has put Japan in an acute deflationary circle since the 1990s.
How to Overcome The Deflationary Spiral
1. Increase Demand for Goods and Services
Deflation is an event of continuous decline in the price of goods within a certain period. This condition was born due to low demand (demand) compared to supply. In theory, to overcome the deflationary spiral, the step is to focus on increasing demand in several ways, such as inviting people to shop through the distribution of stimulus to incentives to business actors with debt restructuring programs to low-interest loans.This has also been implemented by the Indonesian government when it was hit by a recession due to the Covid-19 outbreak. The poor and victims of layoffs received assistance in the form of stimulus, business actors received various waivers such as delaying debt payments to low-interest loans that enabled them to hire more employees. And as a result, in the fourth quarter of 2021, the economy has started to improve, marked by price inflation.
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