Deflation is an economic phenomenon characterized by a general decline in the prices of goods and services.
It is the opposite of inflation. During deflation, the purchasing power of money increases as prices decrease. This can occur due to various factors, such as a decrease in consumer demand, a decrease in the money supply, or an increase in the supply of goods and services.
Deflation can have both positive and negative effects on the economy. On one hand, it can increase the real value of savings, reduce borrowing costs, and promote price stability. On the other hand, deflation can lead to decreased business profits, lower wages, increased unemployment, and a potential downward spiral of economic activity. Central banks often aim to prevent deflation by implementing monetary policies, such as lowering interest rates or increasing the money supply.