Inflation freaks out the Federal Reserve. If things get too inflated, the Fed raises the prime rate, the interest it charges banks to borrow money. This cools off the economy by making loans cost more. For instance, if Boss X has to pay hundreds of dollars extra a month to take out a loan for expansion, but can't tack the cost onto the price tag without losing sales, she'll probably wait until the rates go down. If a slowdown of loan applications occurs in large enough numbers, there is deflation.
Fewer loans mean fewer dollars in circulation, indicating a weakened economy.
When this happens, the Feds steps in and lowers interest rates to stimulate the economy. But they can also heat up dangerously. It's this balancing act of keeping inflation low that makes Federal Reserve head Alan Greenspan so respected. He managed to put the brakes on the runaway inflation of the '80s and stabilize the economy to slow, steady growth. This is excellent for business, as it can better determine costs to make a reasonable profit.