What is Deflation ?

  • Deflation is the opposite of inflation.   
  • Deflation refers to  situation, where there is decline in general price levels.   
  • Thus, deflation occurs when the inflation rate falls below 0% (or it is negative inflation rate).   
  • Deflation increases the real value of money and allows one to buy more goods with the same amount of money over time.   
  • Deflation can occur owing to reduction in the supply of money or credit.   
  • Deflation can also occur due to  direct contractions in spending, either in the form of a reduction in government spending, personal spending or investment spending. 
  • Deflation has often had the side effect of increasing unemployment in an economy, since the process often leads to a lower level of demand in the economy.