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reflation

Normally, following a period of economic uncertainty, like a recession, there is a period of deflation.

Basically, demand drops, and competition forces prices down.

Following a recession, central banks and the government implement a series of policies to get the economy growing again and increase inflation. Collectively, we refer to these policies as “reflationary”. Or, following a recession as inflation increases, analysts might say we are in a period of “reflation”.

Why would central banks want there to be higher inflation? Increasing prices make people unhappy, so it’s not immediately obvious why inflation is something that governments might want.

The current economic consensus is that a modest and steady increase in prices encourages people to spend money, businesses to invest, and keep the velocity of money up.

On the contrary, if prices are going down, then people are more likely to “save” or “hoard” their money to buy things ...


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