Both inflation and deflation have their pros and cons, and as a trader you need to know how to act according to the current state.

With inflation the prices are rising and remaining over 0%. Central banks typically lower interest rates as long as the inflation rate is of around 2%, but when it increases the interest rates are generally raised. With deflation the opposite happens as the inflation rate is very low despite being above 0. In such a situation there is economic complacency, and consumerism is not that high.

Inflation and deflation are economic concepts that have been studied for centuries. Inflation is a rise in prices, while deflation is a drop in prices. It can be difficult to determine which of these two is the more preferable as they both have their pros and cons. Inflation has been noted as benefiting those who make wages or borrow money, as their earnings will go up at the same rate as the cost of living.