Deflation
A general decrease in prices and increase in the purchasing value of money.
Deflation is the opposite of inflation. While it might sound good to consumers initially, sustained deflation often signals a weak economy, as falling prices can lead to reduced corporate profits, wage cuts, and increased unemployment.
Word relationships
- price decrease: More general, can refer to a single item or temporary drop, whereas 'deflation' implies a broader, sustained trend.
- falling prices: A descriptive phrase for the outcome of deflation, but 'deflation' is the specific economic term.
- Inflation: The opposite: a general increase in prices.
Commonly confused with
- Recession: Deflation is a fall in prices; a recession is a significant decline in economic activity. Deflation can be a symptom or cause of a recession, but they are not the same thing.
Word family
- deflate (verb): To cause to lose air or gas; to cause prices to fall.
- deflationary (adjective): Relating to or tending to cause deflation.
Collocations
- severe deflation
- spiral of deflation
- deflationary pressures
- combat deflation
Example sentences
- "Economists are concerned that persistent deflation could lead to a prolonged economic downturn." Economic analysis of a struggling market.
- "The central bank implemented aggressive monetary policies to combat the threat of deflation." Central bank policy discussion.
- "Japan experienced periods of deflation in the 1990s and early 2000s, which hindered economic growth." Historical example.
Memory hook
Think of DE-FLATING a balloon, making it smaller. Prices DEFLATE, meaning they get smaller too. Shrinking prices
When not to use
Do not use 'deflation' to describe a temporary sale or a price drop in a single sector. It refers to a broad, sustained decline in the general price level.
Fun facts
- While inflation is generally seen as a sign of a healthy, growing economy (in moderation), deflation is often feared by economists because it can lead to a 'deflationary spiral' where falling prices lead to less spending, less production, and more job losses.
Explore more words
Devaluation, Contraction, devalue, Depreciation, Bust, decelerate
Also appears in
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