Deflation
dee-FLAY-shun
/ˌdiːˈfleɪʃən/
A general decrease in prices and increase in the purchasing value of money.
While falling prices might sound good, widespread deflation can be very harmful to an economy, leading to reduced spending, lower wages, and increased debt burdens.
The story behind the word. The word 'deflation' also comes from the Latin root 'flare' (to blow), combined with the prefix 'de-' (down, away). It literally means 'a blowing down' or 'a letting out of air.' Its economic sense, referring to the 'letting out of air' from prices and the money supply, emerged in the late 19th century as the opposite of inflation.
Word relationships
- price drop: A specific, often temporary, decrease in a price, not necessarily general.
- economic contraction: A broader term for economic decline, of which deflation can be a symptom or cause.
- inflation: A general increase in prices and fall in the purchasing value of money.
Word family
- deflate (verb): to cause to lose air or gas; to cause prices to fall
- deflationary (adjective): relating to or causing deflation
Collocations
- persistent deflation
- deflationary spiral
- combat deflation
- risk of deflation
Example sentences
- "Economists worry that persistent deflation could lead to a 'deflationary spiral,' where falling prices cause consumers to delay purchases, further slowing the economy." Discussing economic risks.
- "Japan struggled with deflation for decades, impacting its economic growth and consumer confidence." A historical case study.
Memory hook
Think of prices 'deflating' like a balloon losing air and shrinking. Prices Shrink Down
When not to use
Do not use 'deflation' for a single product's price drop or a temporary sale; it refers to a sustained, general decline in prices across the economy.
Fun facts
- Deflation can be particularly hard on debtors, as the real value of their debts increases while their income may fall.
- Central banks often find it harder to combat deflation than inflation, as interest rates cannot go below zero indefinitely.
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