Deflation

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

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.

deflation

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

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

deflation

a fall in the rate of growth of the general level of prices in an economy, or an absolute reduction in the general level of prices (see PRICE INDEX). The authorities may seek to deflate the economy in order to combat INFLATION and eliminate a BALANCE OF PAYMENTS deficit by using restrictive monetary and fiscal measures, i.e. increasing interest rates and taxes to cut spending. See ECONOMIC POLICY, MONETARY POLICY, FISCAL POLICY, PRICES AND INCOMES POLICY.

deflation

a reduction in the level of NATIONAL INCOME and output usually accompanied by a fall in the general price level (DISINFLATION).

A deflation is often deliberately brought about by the authorities in order to reduce INFLATION and to improve the BALANCE OF PAYMENTS by reducing import demand. Instruments of deflationary policy include fiscal measures (e.g. tax increases) and monetary measures (e.g. high interest rates). See MONETARY POLICY, FISCAL POLICY.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

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References in periodicals archive

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QNB has already warned about the dangers of deflation in a series of economic commentaries last year.

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Going forward, the expectation is that the eurozone will remain in deflation for the whole of 2015, despite the expanded Quantitative Easing (QE) adopted by the European Central Bank last Thursday.

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While Japan and other G7 members - as well as China, Russia and other BRICS states - have followed the US lead into monetary easing to avert disinflation or deflation, meanwhile, the orthodox Germans are still strongly opposed to a European Central Bank (ECB) use of such "tools for a descent towards an artificial economy".

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Plenty of people are alarmed by the prospect of deflation, which can snuff out growth by making consumers reluctant to spend and companies unwilling to invest.

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A significant decline in commodity prices in recent weeks -- coupled with a worsening global economic outlook and major corrections in global equity markets -- could result in a Great Deflation, namely a vicious circle of price/asset deflation around the world.

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