As much as people don't talk about it much, deflation is an economic indicator that can greatly affect your quality of life.

But, as the Brazilian people are more used to dealing with inflation on a daily basis, which causes prices to rise, it is common for people not to know what it means when the market is in a period of deflation.

However, it is essential to know more about this indicator, because it can greatly influence your purchasing power in the future and make it difficult to access different products and services.

Therefore, if you want to stay informed and know what the deflation index means and how it influences your financial life, just continue with us in this article and we'll tell you everything!

In summary, deflation is an economic indicator used to show when different products and services from different segments are lowering their prices in a generalized way.

Therefore, deflation is almost the opposite of inflation. At first, it might not even seem like such a bad rate, after all, who wouldn't want to pay less for products or services.

However, this decrease could greatly harm the market, causing higher unemployment rates and lack of public access to essential products for life.

And a very important point to pay attention to about deflation is that it only happens when the prices of different products and services are decreasing together in a generalized way and for a long period of time.

Thus, if the price of a product decreases during one or two months, this scenario does not fit into a deflation event.

To be a deflation it is necessary that the value of several products of different segments are decreasing for a long period of time for it to be considered a trend.

In short, deflation is caused when there is a very large production of products and services that the consumer is unable to buy. 

Thus, there is an imbalance between supply and demand, where there is a lot of supply but little demand from the public.

When this happens, it may indicate that the consumer is not willing to buy certain items or that he does not have enough money to make this type of purchase.

In this way, this means that companies and large industries need to reduce the value of their product so that they can generate some sales.

However, this decrease in value can lower the quality of the product and lead to more employee layoffs, as the company is no longer able to pay everyone.

Although deflation is different from inflation, the way it is calculated follows the same parameter as inflation.

Therefore, deflation is calculated using an index that measures price changes in Brazil. Nowadays, there are several indices made to measure this variation, but the most used is the IPCA.

The IPCA is an index calculated by the IBGE where it measures the cost of a basket of basic products that Brazilian families with incomes from 1 to 40 minimum wages usually consume.

Therefore, the IPCA measures the variation in this basket and discloses this value to the public.

In this way, when analyzing the items, it is possible to say how prices are changing and, thus, understand whether the current scenario is one of inflation or deflation.

In summary, deflation is a very bad economic phenomenon that can greatly impact the finances of several Brazilian families.

As much as the decrease in prices at first does not seem like a negative thing, it can have several consequences in the financial market. And they can cause consumers to lose purchasing power and access to products.

So when deflation happens, companies can no longer pay their employees and end up firing them. This makes many people lose their income and need to reduce the level of consumption.

With few people consuming, industries end up having losses in their production, since there is a greater supply of products that few people consume.

In this way, this movement that causes the price of products and services to constantly decrease, can:

If you enjoyed understanding deflation in depth and how it can influence your life, see in the post below how inflation works and how it can harm your financial life.