A week or so ago I watched a local news article about deflation in Japan.  It claimed that prices had dropped by around 10% on all goods except food and that further price cuts were expected. It also said things like “terrible depression”, and “failing economy”.

I hadn’t noticed any price reductions but last week the local bakery put up a sign to say it was cutting all prices by 10%.  Today, when I went to buy sushi, each packet was 280 Yen when two days ago it was 350 Yen – a 20% discount.

So if inflation is bad, and now I’m being told that deflation is bad, what exactly is supposed to happen and what is it called?