Deflation (redirected from Price Deflation)

Deflation

Decline in the prices of goods and services. Antithesis of inflation.

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deflation

A reduction in consumer or wholesale prices. The term generally applies to more than just a temporary decline. Compare inflation. See also disinflation.

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Deflation

A situation in which a currency gains value, often resulting from a decrease in prices. Many economists believe that deflation is the result a fall in demand for goods and services, which causes producers to reduce prices. This reduces their profits and causes a reduction in investment, which contributes to a further drop in demand. Because of this deflationary spiral, deflation is often associated with recessions and depressions and has been known to cause unemployment. It is also called negative inflation. See also: Lost Decade, Inflation.

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Deflation. Deflation, the opposite of inflation, is a gradual drop in the cost of goods and services, usually caused by a surplus of goods and a shortage of cash.

Although deflation seems to increase your buying power in its early stages, it is generally considered a negative economic trend. That's because it is typically accompanied by rising unemployment, falling production, and limited investment.

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Deflation

What Does Deflation Mean?

A general decline in prices often caused by a reduction in the money supply or credit; it also may result from a decrease in government, personal, or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.

Investopedia explains Deflation

Declining prices, if they persist, generally create a vicious negative spiral of falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce higher prices and inflation. Rising prices provide an essential lubricant for a sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.

Related Terms:
• Consumer Price Index—CPI
• Hyperinflation
• Inflation
• Monetary Policy
• Stagflation