A traditional view would be that the economy operates based on expectations.

Inflation and deflation bring about different sets of expectations about the future, which can subsequently impact the present.

Inflation

With inflation and prices rising people generally prefer to buy in the present and avoid paying more in the future. Inflation encourages spending.

Assuming wage rises are also occurring then debts are eroded and can be paid back more easily.

Deflation

With deflation and falling prices people stop buying today in the hopes that it will be cheaper in the future.

When people stop buying, demand for products and services wane, leading businesses to lay off workers. As the unemployment rate rises, people’s paychecks fall, creating the conditions for even less spending and a potential death spiral of further price cuts, thus slowly but surely killing the economy.