Why it's important While rampant inflation comes with its own set of challenges, very low levels of inflation (such as that in Japan) also create economic headwinds. That's because, at moderate levels, inflation encourages consumers and businesses to spend. If the cost of an item will be higher in the future, purchasers are more likely to buy it before the price goes up, and that stimulates demand. The reverse is true in a deflationary environment: Consumers and businesses put off purchases for extended periods, leading to weak or negative inflation

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