A couple of weeks ago, this blog predicted that we might see simultaneous recession and inflation.

It might be an idea if some kind person printed that article, kept it in a drawer for about five years, and then sent it to the Royal Swedish Academy of Sciences, P O Box 50005, Stockholm: they are the nice people who dole out the Nobel Prizes for Economics. We reckon our prescience should be generally acknowledged about then.

Meanwhile, a hard-working entrepreneur might well ask, “All very interesting, Professor, but what’s that got to do with me?”

The hard truth is that deflation is bad for business, inflation is very bad for business, and a possible combination of the two makes the economic disaster we have seen so far look like a house-warming party.

To start with the most obvious, deflation means less money.

1   Deflation means less money from customers. That means lower sales.

2   Deflation means less money for business. At the same time, credit dries up and new investors become scarce.

3   Deflation does not necessarily mean lower costs. The great injustice in all this is that, even if prices in general start falling, they are not necessarily the prices business wants to fall – taxes are actually going up, some key commodity prices are increasing with scarcity, and do not count on any employees who ask for pay rises in line with inflation to start demanding pay cuts in line with deflation.

4   Deflation means loans get more expensive. Each year you have less and less money with which to pay off any loans, but the loans themselves are not magically shrinking. They have the very genuine effect of seeming to get more and more expensive. Whereas inflation erodes the real cost of a loan, deflation increases it.