Deflation Essential terms you should know.

Deflation A Term You Need to Know

Deflation is a decrease in the general price level of goods and services over a specific period of time, typically measured by the Consumer Price Index (CPI) or a similar index. It is expressed as a percentage change from one period to another.

Deflation is the opposite of inflation and occurs when the overall price level of goods and services decreases over time. This decrease in prices can be caused by a variety of factors, including a decrease in the money supply, a decrease in demand for goods and services, and increased productivity and efficiency in the economy.

While low inflation is generally seen as a positive sign for an economy, deflation can have serious negative consequences. When prices are falling, consumers may delay purchases in the expectation that prices will fall further, leading to a decrease in demand for goods and services and lower economic activity. Deflation can also lead to lower wages and higher levels of unemployment, as well as make it more difficult for businesses and consumers to repay debt.

Deflation is typically measured as a percentage decrease over a set period of time, such as a year or a quarter. It is a rare occurrence in modern economies, but has been seen in some countries during times of economic crisis or recession. Policymakers and central banks typically work to prevent deflation by using monetary policy to stimulate demand and boost economic activity.

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