Deflation Explained

Deflation occurs when the general price of goods and services reduces and causes inflation to fall below 0%.

Deflation increases the relative value of money and allows consumers and businesses to buy more goods and services. Whilst deflation can seem a good thing in the short term, deflation can aggravate or cause recessions as demand drops as people believe the goods/services they buy now may be cheaper tomorrow. The resulting drop in demand-inflation can result in over-production / excess availability of services which in turn leads to an economic slump.

Next: Understanding Inflation

Previous: Inflation Explained

Inflation Guides and Inflation Calculators