I think the term deflation and inflation have been abused a lot by popular media and not using them with explicit meanings to what are going up or down says nothing. If the analysis in my original post is right, we can have a per-capita improvement in productivity due only from better capital equipment and technology and a fixed money supply will mean price deflation in final goods. But it says nothing about wage levels. If there is no increase in the workforce, then the wage level is constant. Wage level will be in deflation only if money supply is fixed with an increasing workforce. I think a small constant long term inflation or deflation of the like of 3% per annum will not harm economic activities per see. We know that with proper free markets of goods, prices adapt very well as Sales and Marketing can react very fast. In many cases of retail products, variations of quality of similar goods, brand names, shops, location, etc will have premiums or discounts in prices and these would make a 3% minor. Wage deflation would be more difficult to justify as wages of a single person has a certain stickiness and don't adjust very well or fast to changing labor environment. A money supply matching population growth would be more reasonable. But there is still an ameliorating factor. Take the case of an experienced worker whose salary is unchanged for 10 years, ie, he is retained because of satisfactory performance. His living standard had been rising due to deflating CPI. A new entrant to a similar job market would start will a lower salary due to deflating wages. So this still seem logical - someone with proven experience holds a higher salary than a new entrant to the job market. There is another important issue with deflating prices of goods. Consumption goods that are produced only to be consumed and not for resale will deflate fully according to the normal deflating environment. On the other hand, investment goods with a long usable life-time with a ready resale market will deflate very differently, maybe very much less. Take the case of a high rise apartment building 10-years-old compared to a newly built similar building. The market value of the older building will usually have a discount based on a true deterioration discount and not affected much by a general deflation environment for consumption goods. All in, it is unlikely that small inflation or deflation, by themselves, can harm economic growth.