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36 Countries with Deflation or Dangerously Low Inflation
Ali Hassan
16 min read

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In this article, we will look at 36 countries with deflation or dangerously low inflation. If you want to skip our detailed analysis, head straight to 10 Countries with Deflation or Dangerously Low Inflation.

Deflation or Dangerously Low Inflation

While some of the most developed countries in the world including the US and many European countries suffer from high increases in consumer and energy prices, a few countries are facing deflation. When prices of consumer items go down, it is generally taken as a positive sign as the purchasing power of consumers increases and currencies gain value. However, too much deflation can be problematic for economies. It can stagnate economic growth, result in increased unemployment, lead to an increase in interest rates, and also result in lower economic output.

Deflation can be a complex phenomenon. Initially, it will seem good but with time it will get worse and negatively impact the economy. According to a research study ‘The Costs of Deflations: A Historical Perspective,’ the perception regarding deflation that it is very costly is mainly shaped by the Great Depression, and especially by the US experience. During the Great Depression in the US, there was a period when stock and house prices saw an increase, a credit surge, and robust output growth was recorded. The inflation rates and interest rates were low and productivity was strong. This period of apparent productivity ended with the Wall Street Crash of October 1929. A striking financial and economic meltdown followed, leading to bank panics, mass unemployment, asset price collapses, real economic contraction, and dramatic goods and services price deflations in many countries. As per the study, the real output in the US plunged by approximately one-third and consumer prices by almost a quarter between 1929 and 1933. During the same period, nominal wages also dropped by nearly one-fifth in the US, while the unemployment rate soared from 3% to a whopping 25%. As per the study sample, 15 other economies also suffered deflation with a drop in output, goods, and services prices, and asset prices also fell substantially. Among these economies, the median drop in real output was around 7% between 1929 and 1933, much smaller compared to the US. The median decline in house prices across economies was 22% between 1929 and 1933. You can also take a look at the richest countries during the Great Depression.

One of the most prominent examples of deflation in recent times is Japan. The Asian country suffered persistent deflation with a cumulative fall in consumer prices of almost 4% between 1998 and 2012, as per the research in ‘The Costs of Deflations: A Historical Perspective’. According to another study by the Asian Development Bank Institute, Japan’s real estate and stock market collapsed in the early 1990s and the economy went into a tailspin. Since the real estate and the stock market bubble burst, Japan’s economy faced sluggish economic growth and recessions, also known as ‘Japan’s Lost Decade.’ During 1995 and 2002, Japan’s annual real gross domestic product growth averaged only 1.2%, which was lower than the rest of the largest economies in the world at that time.  

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