This morning cnnmoney.com included a section in this article about deflation. The article does a good job of explaining why a deflationary environment can be harmful to the health of the economy….especially in the retail sector.
Now, economists are worried about deflation – the opposite of inflation. Falling prices may be a welcome sign for consumers in grocery store aisles and filling up at the pump, but deflation is generally a bad sign for the economy.
…If prices fall below the cost it takes to produce products, businesses will likely have to cut production and slash payrolls. Rising unemployment would cut demand even further, sending the economy into a vicious circle.
The silver lining is that in a deflationary environment we would expect mortgage rates to move very low. Here are links to 3 other deflation posts-