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Playing as Ottomans and it's 1861. My inflation rose to 2%. I played a reduce inflation by 5% card expecting it to reduce to 0%. Next turn inflation changed to Minus 3%. I have never seen minus inflation in this game before. Is it bad?

no its good, inflation increases the costs of structures, so if you have say 10% at 1000 money building now costs 1100. If I recall, negative inflation doesn't reduce the cost below the baseline but even so its a bit of slack you now have in the system.

I guess this is technically deflation. In real economy that's bad, you want a bit of inflation. In PON, as Loki says