Remember when everyone said bitcoin was doomed because it's deflationary?
Or looking at it another way, inventing a new denomination like a millicent (= 0.001c) will automatically increase our money supply...
But the scenario you're citing isn't the central issue when it comes to deflation. Deflation leads to a negative spiral because it pays off to defer any kind of spending - thereby slamming on the economic brakes. Notable example is Japan in 90s - deflation has been a major factor in its meagre growth then and even into the 2000s. The BoJ's unwillingness to adopt a sufficiently expansionary monetary policy likely exacerbated the problem
The only problem is the cost of division (making leaf is somewhat labor intensive, but not prohibitively so by any stretch).
The hard limit is $1e-20, according to wolfram alpha. IIRC bitcoin will only get you down to e-8.