What is Financial Inflation and Financial Deflation?

Financial inflation :
Financial inflation occurs when the prices of goods and services in an economy rise too rapidly. It’s like too many dollars chasing too few goods. When goods and services are in high demand, their availability (supply) decreases, leading to higher prices. Factors such as natural disasters wiping out crops, housing booms exhausting building supplies, or overwhelming aggregate demand can contribute to inflation. The most common measure of inflation is the Consumer Price Index (CPI), which tracks the prices of a theoretical basket of goods and services, including consumer items, medical care, and transportation costs. Hyperinflation, where monthly prices increase by over 50%, is rare but can be economically disruptive.
Financial deflation :
On the other hand, deflation occurs when there is a general decline in prices of goods and services. It signifies an inflation rate that falls below zero percent. Deflation can result from an excess supply of goods or insufficient money circulating to purchase those goods. While moderate inflation can encourage spending and investment by slowly eroding the buying power of cash, deflation can be problematic. A complete lack of inflation can harm the economy, as seen during the Great Depression. Deflation increases the purchasing power of money, allowing people to buy more with the same amount of currency . In summary:

• Inflation: Rising prices, reduced purchasing power.
• Deflation: Falling prices, increased purchasing power.

Both inflation and deflation can have significant impacts on an economy, and central banks closely monitor these conditions to maintain stability .