You're confusing monetary deflation with price (value) deflation.

Yes, BTC is monetarily inflating, but

1) It's all baked in. We know exactly how much BTC is generated and will be generated and when it will stop.

2) The demand for BTC is growing, so we don't see the price collapsing exponentially.

It's been in severe deflation price wise over the long run, the idea is that it means bitcoin holders won't spend their coins. However that doesn't really match reality: transactions have been going up over time. Additionally I recall BitPay saying that their traffic goes up when the price goes up, as people find that they are suddenly rich and splash out. Like a lot of macroeconomics, the whole "falling prices means falling skies" theory doesn't hold up to close inspection:

https://www.minneapolisfed.org/research/sr/sr331.pdf