{"id":24652,"date":"2026-04-28T14:03:30","date_gmt":"2026-04-28T14:03:30","guid":{"rendered":"https:\/\/incredipros.com\/?p=24652"},"modified":"2026-04-28T14:03:30","modified_gmt":"2026-04-28T14:03:30","slug":"what-is-deflation-ramsey","status":"publish","type":"post","link":"https:\/\/incredipros.com\/?p=24652","title":{"rendered":"What Is Deflation? &#8211; Ramsey"},"content":{"rendered":"<div>\n<p>What if we told you the prices on groceries, clothes and even houses were going to drop? You\u2019d probably be thrilled! Lower prices? Heck yes. We\u2019re big fans of you keeping more money in your pockets too\u2014but <em>not <\/em>when the reason for it is deflation.\n    <\/p>\n<p>De\u2014<em>who<\/em>? Deflation.\n    <\/p>\n<p>So what is deflation? Glad you asked. You\u2019ve heard all about the hot topic of the year called <em>inflation<\/em>, but do you know about its sneaky sibling called <em>deflation<\/em>? Grab your book bags, kids, because we\u2019re about to hit the economics class together.\n    <\/p>\n<h2>What Is Deflation?<\/h2>\n<p><strong class=\"speakable\">Deflation is when prices for goods and services go down over time and the rate of inflation drops under 0%. In plain words, that great big, deflation definition just means you can get more bang for your buck (aka purchasing power) when you head out to the store or shop online.<\/strong> When deflation happens, the value of the dollar goes up and stretches further. Sounds like a great thing, right?\n    <\/p>\n<p>Wrong.\n    <\/p>\n<h2>Why Is Deflation Bad?<\/h2>\n<p>As nice as it sounds on paper\u2014being able to buy more things because prices are cheap\u2014deflation is actually no good. <em>Why<\/em> is deflation bad? Well, once you pull back the curtain here, you see a few things: <strong class=\"speakable\">Deflation can cause unemployment rates to spike, salary and hourly pay to drop, and big-time assets like homes to lose their value (we\u2019ll dig into all that later). And sometimes, it can even spur on a recession. See? Like we said, no good.<\/strong>\n    <\/p>\n<div class=\"BlogInsert-copy\">\n<p>Get expert money advice to reach your money goals faster!<\/p>\n<\/p><\/div>\n<p>So, how does deflation stack up compared to inflation? Hint: It\u2019s exact opposite. Let\u2019s take a look.\n    <\/p>\n<h3>What Is Inflation?<\/h3>\n<p>Inflation is when the prices of goods and services go <em>up<\/em>. That means that the value of the dollar goes down and can\u2019t go as far to cover prices.\n    <\/p>\n<p>Yeah, inflation is like the bad kid at school who just owns it, and deflation is like that one kid everyone <em>thinks <\/em>is good, but in reality, they\u2019re up to shenanigans too\u2014they\u2019re just better at hiding it. We all knew <em>that <\/em>kid.\n    <\/p>\n<h3>What Is Disinflation?<\/h3>\n<p>Disinflation happens when the inflation rate starts slowing down. Don\u2019t get this one confused with deflation though (that\u2019s easy to do). <em>Disinflation <\/em>just shows how much the inflation rate is going down from year to year (as long as it doesn\u2019t drop past zero)\u2014like marking a change of 5% one year to 3% the next. If<em> <\/em>the rate <em>does<\/em> fall past 0%, that\u2019s deflation. And people wonder why kids fall asleep in economics class . . .\n    <\/p>\n<h2>What Causes Deflation?<\/h2>\n<p>Deflation is caused when the need for goods and services goes down, which leads to an oversupply of products. There are a lot of different things that can play a role in making deflation happen, but most of the time, it all comes down to a pretty straightforward supply and demand problem.\n    <\/p>\n<p>If people aren\u2019t spending as much money on goods and services, then the price of those items will go down to nudge more people to spend their money. <em>Oh, this pair of jeans is so cheap\u2014I just have to buy it!<\/em> Again, it sounds good at first glance. But if deflation is happening, that means there\u2019s some bad stuff going on under the surface. More than likely, people are bringing home less money and have less of it to spend on a whim. And because of that, folks are more likely to hoard their money because things look so unstable. They might even hold out for prices to drop even <em>more <\/em>before they make a purchase. This can really create a mess in the economy.\n    <\/p>\n<h2>Are We Experiencing Deflation in the Economy Now?<\/h2>\n<p>Nope. Right now, we have the opposite issue on our hands\u2014inflation. The Consumer Price Index shows that cost of goods and services has gone u\u00adp 5.4% in the last year.<sup>1 <\/sup>\n    <\/p>\n<p>And according to\u00a0The State of Personal Finance study from Ramsey Solutions, 8 in 10 Americans say their money doesn\u2019t go as far at the stores as it used to.\n    <\/p>\n<p><em>Still<\/em>, what goes up has to come back down. And because of the inflation levels happening now, some economists say we could see deflation come our way in 2022. <em>But <\/em>the same people had said the 2020 recession was going to drag on\u2014and it only lasted two months.<sup>2<\/sup> So stay tuned for how <em>that <\/em>pans out. Just remember, it\u2019s okay to be in the know, but don\u2019t live your life being afraid about what <em>could <\/em>happen. That\u2019s no way to live.\n    <\/p>\n<h2>How to Calculate the Deflation Rate<\/h2>\n<p>First things first\u2014the key to measuring deflation is the Consumer Price Index (CPI). It tracks how much the price of items and services changes over time (like how that soap and those apples you buy keep costing more). All right, now that we know what CPI is, we can crunch some numbers to figure out the rate of deflation. Sure, math can be a real drag\u2014but the good news is, there\u2019s a pretty simple formula to figure out the deflation rate. Stick with us here:\n    <\/p>\n<p style=\"text-align: center;\">CPI of previous year \u2013 CPI of current year\u00a0 \u00a0\u00a0 \u00a0\u00a0\u00a0 \u00a0\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<br \/>_________________________________\u00a0 \u00a0\u00a0 \u00a0\u00a0\u00a0 = Deflation rate<br \/>CPI of previous year\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0\u00a0 \u00a0 \u00a0 \u00a0 \u00a0\n    <\/p>\n<p>So, let\u2019s say the CPI from the previous year was 1.6% and the CPI for the current year is 0.8%. The deflation rate would be 0.5%. That big scary math problem wasn\u2019t so awful after all.\n    <\/p>\n<h2>How Does Deflation Impact the Economy and Your Money?<\/h2>\n<p>The effects of deflation aren\u2019t pretty. Just take Japan for example\u2014they\u2019ve been dealing with deflation since the late 1980s. And because of it, Japan\u2019s economy is stuck in a cycle that they just can\u2019t seem to break free from\u2014they rise up from deflation just to sink back down again.<sup>3<\/sup> Unlike here in America right now, where we\u2019re dealing with a 5.4% increase in prices, Japan\u2019s cost of goods dropped to 0.1% in May\u2014digging a deeper hole in their deflation deficit.<sup>4<\/sup>\n    <\/p>\n<p>How does something like that happen? Let\u2019s break down how deflation impacts the whole economy:\n    <\/p>\n<h3>Investments<\/h3>\n<p>For the most part, deflation isn\u2019t very good news for stocks. And it makes sense why. Prices going down can really hurt a company\u2019s bottom line. When people stop buying specific brands, that can lead to shareholders jumping ship from their investments\u2014that\u2019s no good.\n    <\/p>\n<p>And it\u2019s not just stocks that take a beating. Let\u2019s talk about the biggest purchase you\u2019ll ever make\u2014your home. Yep, you guessed it. The value on that big investment tanks during deflation too. Homes sell for close to dirt cheap during deflation because there is less demand (aka no one wants to buy them up).\n    <\/p>\n<h3>Jobs<\/h3>\n<p>With fewer people spending their money, there\u2019s a bigger supply of products for sale. That might sound like a great thing (no toilet paper shortage in sight here!), <em>but <\/em>a higher supply of items means there\u2019s less need for manufacturing those things. That means there\u2019s <em>les<\/em>s need for production and <em>less<\/em> need for those jobs. Companies will likely stop hiring people, have no job growth to add to the market, and start layoffs.\n    <\/p>\n<h3>Income<\/h3>\n<p>Thanks to the oversupply issue, a lot of businesses will lose money. And when the business is hurting, they might have to make tough choices to keep the lights on. The first thing they\u2019ll do is probably cut wages and make raises a thing of the past. And if you\u2019re making less money (even with prices of goods going down), you\u2019re still going to hoard your cash and prepare for the worst-case scenario here. While that might be the best decision for you <em>personally<\/em>, that actually doesn\u2019t help the economy as a whole. But at the end of the day, you have to do what\u2019s best for <em>you <\/em>and your house.\n    <\/p>\n<h2>How to Protect Yourself Against Deflation<\/h2>\n<p>Funny enough, the steps to protecting yourself against deflation aren\u2019t that different from protecting yourself against inflation. The plan stays the same but looks different based on what\u2019s going on in your world. Here\u2019s how things shake out: \u00a0\n    <\/p>\n<h3>1. Stay calm.<\/h3>\n<p>This goes without saying, but you\u2019d be surprised by how many times staying calm is the first thing to go out the window. So, step one\u2014keep your cool.\n    <\/p>\n<h3>2. Budget.<\/h3>\n<p>Having a budget is key to your success with money\u2014deflation, inflation or pigs flying. You <em>always <\/em>need a budget telling your money where to go (yeah, even if you\u2019re a millionaire). If you\u2019ve got money, then you need to make it work for you. And a budget is the plan you need to make that happen.\n    <\/p>\n<p>If prices are lower because of deflation, well, then your money is going to go <em>a lot<\/em> further. Not a bad problem to have there. But remember, under deflation, people are usually making less money and <em>not<\/em> spending as much money. Because things look so rocky, they want to sit on all of their money. If you\u2019re trying to spend as little as possible, you\u2019re going to need a budget to help you keep those purse strings tight and see where you can cut back.\n    <\/p>\n<h3>3. Save.<\/h3>\n<p>When deflation is happening, saving is what comes natural to most folks. Lucky for you, you\u2019ve already been saving and it\u2019s second nature at this point (we hope!). This is another one of those times when you can breathe easy because you had your emergency fund locked and loaded.\n    <\/p>\n<p>Need to find quick ways to save? Making small tweaks to how you spend money can add up to big savings. Look for ways to\u00a0lower your grocery bill\u00a0or\u00a0save money on gas. Maybe it\u2019s time to cancel some subscriptions, switch over to generic brands, or just bring your lunch to work. Remember, look at your budget to spot the places that need some fine-tuning to make the savings happen.\n    <\/p>\n<p>And don\u2019t forget\u2014deflation means the Federal Reserve will likely raise interest rates. That means it\u2019s a <em>good <\/em>time to hurry up and get out of debt, plus a great time to let your savings grow thanks to the little extra bump in interest.\n    <\/p>\n<h3>4. Invest.<\/h3>\n<p>The best way to protect yourself against deflation (or inflation) is to\u00a0invest your money in a diverse way\u2014you know, don\u2019t have all your eggs in one basket. And the sooner you can invest, the better. But remember, if you still have debt (other than your mortgage) and don\u2019t have an emergency fund fully stacked, you need to take care of both of those things\u00a0<em>first<\/em>. The sooner that\u2019s squared away, the sooner you can tackle investing and watch those investments grow.\u00a0\n    <\/p>\n<p>But don\u2019t just wing it and hope things work out for you. Talk with an investing pro to make sure you\u2019re in a good place\u2014deflation or not. A SmartVestor pro will walk you through the process and guide you toward the best plan for your money.\n    <\/p>\n<\/p><\/div>\n<p>Read the full article <a href=\"https:\/\/www.ramseysolutions.com\/budgeting\/what-is-deflation\" target=\"_blank\" rel=\"noopener\" rel=\"nofollow\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What if we told you the prices on groceries, clothes and even houses were going to drop? You\u2019d probably be thrilled! Lower prices? Heck yes. We\u2019re big fans of you keeping more money in your pockets too\u2014but not when the reason for it is deflation. De\u2014who? Deflation. So what is deflation? Glad you asked. You\u2019ve<\/p>\n","protected":false},"author":1,"featured_media":24653,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[55],"tags":[],"class_list":{"0":"post-24652","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.2 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is Deflation? - Ramsey | IncrediPros<\/title>\n<meta name=\"description\" content=\"What if we told you the prices on groceries, clothes and even houses were going to drop? You\u2019d probably be thrilled! Lower prices? Heck yes. 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