Inflation and deflation are two of the key drivers of product-pricing decisions. Inflation, or increased costs of goods and services, tends to erode profits and exert upward pressure on prices to customers. Price increases to your customers without increases in your costs improve profits. Inflation needs to be analyzed in the context of your firm's buyers, suppliers, and timing of price increases. Inflation can be economically destructive because it creates an upward spiral in prices.

Deflation is a downward force in prices. Deflationary pressures also require careful consideration to determine their effect on your business. Downward pricing pressures may also have negative effects on businesses and the economy as a whole as they decrease GDP. Global pricing pressures force U.S. firms to reduce prices, thus lowering profits. Lower prices require increased unit sales to attain the same revenue.