Deflation

Deflation is a sustained decrease in the general price level of goods and services.

Deflation occurs when the annual inflation rate falls below zero percent, resulting in an increase in the real value of money — a negative inflation rate. This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when the inflation decreases, but still remains positive).

Inflation reduces the real value of money over time, conversely, deflation increases the real value of money.

Currently, mainstream economists generally believe that deflation is a problem in a modern economy because of the danger of a deflationary spiral.

Deflation is also linked with recessions and with the Great Depression. Additionally, deflation also prevents monetary policy from stabilizing the economy because of a mechanism called the liquidity trap. However, historically not all episodes of deflation correspond with periods of poor economic growth[