Deflation is the opposite of inflation: average prices keep falling. It can sound welcome for shoppers, yet it often goes with weak demand, delayed spending (buy later for less), and heavier real debt burdens. Central banks usually try hard to avoid a long deflationary spiral.
Key takeaways
- Falling prices raise the real value of fixed debt.
- Wages and asset prices can also come under pressure in deflationary periods.
- Mild one-off price drops are not the same as broad, persistent deflation.
- Policy tools against deflation often include lower rates and easier money.