deflation

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For more information on deflation, visit Britannica.com.

The opposite of inflation. A decline in general price levels, often caused by a reduction in the supply of money or credit. Deflation can also be brought about by 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, since the process often leads to a lower level of demand in the economy. Other downside effects include possible pay cuts and more expensive repayment of consumer debts. The upside of falling prices is that mild deflation would assure working people (at least those who fend off pay cuts) of steadily rising real wages.

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The action of the wind in removing material from a surface and lowering that surface; annual deflation from the Sahara is between 400 and 700 million tonnes yr^-1. Resulting landforms include small hollows and blow-outs. The world's largest deflation hollow is the Qattâra Depression of the western Egyptian desert (but its formation may also be structural). Deflation is most effective in areas where annual precipitation is 5-100 mm yr^-1, where vegetation cover is scanty, and where extensive areas of non-cohesive deposits are exposed, as in loess or in dry lake beds.

The dictionary definition is ‘an economic situation characterized by a rise in the value of money and a fall in prices, wages, and credit, usually accompanied by a rise in unemployment’ (OED). However, in politics it is generally used much more loosely to mean a government-imposed squeeze on credit and/or rise in interest rates leading to increased unemployment.

A decrease in prices, often stated as an increase in the value of money, related to a decline in spending by consumers. (Compare inflation.)

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.

The decline in prices of assets, is often known as Asset Deflation.

Investopedia Says:
Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits,  closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind. 

Deflationary periods can be both short or long, relatively speaking. Japan, for example, had a period of deflation lasting decades starting in the early 1990's. The Japanese government lowered interest rates to try and stimulate inflation, to no avail. Zero interest rate policy was ended in July of 2006.

Related Links:
Find out how deflationary shocks can both benefit and hurt consumers and businesses. Deflationary Shocks: Helping Or Hurting The Economy?
Deflation has continued to pop up throughout economic history - but is that such a bad thing? The Upside Of Deflation
Learn about the tools the Fed uses to influence interest rates and general economic conditions. Formulating Monetary Policy
Find out what America can learn from Japan's liquidity trap and credit crunch. The Lost Decade: Lessons From Japan's Real Estate Crisis
As a measure of inflation, this index can help you make key financial decisions. The Consumer Price Index: A Friend To Investors
This method may seem arcane, but many well-established strategies rely on it. Trading The Gold-Silver Ratio

For a list of words related to deflation, see:

• Processes, Phenomena, Events, and Techniques - deflation: removal of loose particles from ground by action of wind
• Economics and Economic Theory - deflation: decrease in money supply, causing sharp fall in prices

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See words rhyming with "deflationary."

Dansk (Danish)
n. - deflation, formindskelse af lufttryk, indskrænkning af pengemængden, vinderosion

Nederlands (Dutch)
deflatie, erosie van gesteente door wind

Français (French)
n. - (Écon) déflation, dégonflement (d'un pneu)

Deutsch (German)
n. - Deflation

Ελληνική (Greek)
n. - (οικον.) αποπληθωρισμός, αντιπληθωρισμός, υποχώρηση τιμών, υποτίμηση, ξεφούσκωμα

Italiano (Italian)
deflazione, sgonfiamento

Português (Portuguese)
n. - deflação (f)

Русский (Russian)
выпуск, выветривание

Español (Spanish)
n. - desinflamiento, deflación, erosión

Svenska (Swedish)
n. - deflation

中文（简体）(Chinese (Simplified))
放气, 通货紧缩, 缩小

中文（繁體）(Chinese (Traditional))
n. - 放氣, 通貨緊縮, 縮小

한국어 (Korean)
n. - 통화 수축, 건식, 가스 제거

日本語 (Japanese)
n. - 空気を抜くこと, 小さくなること, 収縮, 通貨収縮, デフレ, 乾食

العربيه (Arabic)
‏(الاسم) عمليه تفريغ الهوا أو الغاز من شئ منتفخ ( كالعجل مثلا)‏

עברית (Hebrew)
n. - ‮צמצום מחזור הכסף, דיפלציה‬

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