Deflation, in contrast to inflation, is a general decrease in the price of goods and services. More specifically, it happens when the rate of inflation is less than 0% or when, over time, the value of money increases.
It’s generally accepted that a sustained period of deflation has a detrimental effect on economy, as it creates an incentive for consumers to delay spending. For example, you probably wouldn’t buy something today if you’re sure that it will be cheaper next week.
There’s also a disincentive to borrow — affecting one of the primary functions of financial markets as deflation will increase the real value of any debt over time. Alongside this, the interest payments needed to service the debt will become comparatively more expensive.
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