Since the cause of deflation is a lack in demand, sales will inevitably fall in volume. A fall in the prices of products, together with such a fall in the volume of sales, will substantially reduce firms’ sales.
Of course, if firms manage to correspondingly reduce production costs and fixed costs, profits – the most important element in corporate management – will be secured despite a decline in sales. The problem lies in the fact that reduction on various costs is difficult. Economic history reveals episodes in which deflation further aggravated economic deterioration.