I’d like to know whether companies face more difficulties in a deflationary or inflationary scenario. My political economy textbook says that rising and decreasing prices harm businesses and that price stability benefits businesses because it’s easier to estimate prices…
There is no such thing as stability of prices. The very concept is a chimera. As long as we change as human persons and change the world through our actions, prices will change.
Moreover, neither rising nor falling prices in general make it more or less difficult for entrepreneurs to estimate the prices relevant to their own production. If prices in general rose 2 percent per year or fell 2 percent per year, it would add no difficultly to entrepreneurial prediction.
Finally, money production in the market is regulated by profit, which is itself subject to entrepreneurial speculation. Prices in general, then, have as little volatility as possible. With the state inflating fiat paper money, waves of price changes are constantly rippling through the entire market. And if the monetary inflation is done through credit expansion, it generates the volatility called the boom-bust cycle.