Deflation

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.

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.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Deflation — Déflation Pour les articles homonymes, voir déflation (homonymie).  Ne doit pas être confondu avec désinflation. En économie, une déflation est une baisse de l indice des prix observée sur une période suffisamment longue …   Wikipédia en Français

  • deflation — n. 1. the act or process of deflating. [PJC] 2. a fall in the average prices of goods and services; usually associated with contraction of economic activity. Opposite of {inflation}. Compare {disinflation}. [PJC] 3. the reduction of available… …   The Collaborative International Dictionary of English

  • Deflation — Дефляция  – термин  используемый для описания ситуации падения общего уровня цен или увеличение покупательной способности денег вследствие уменьшения совокупного спроса, снижения стоимости товаров, ограничения количества денег в обращении. … …   Финансовый словарь

  • Deflation — Deflation, s. Abrasion, Denudation und Wüste …   Meyers Großes Konversations-Lexikon

  • Deflation — (lat.), die Fortführung der lockern Teile der Erdoberfläche durch den Wind, bes. in Wüsten …   Kleines Konversations-Lexikon

  • deflation — index decline, decrease, depression, diminution, disgrace Burton s Legal Thesaurus. William C. Burton. 2006 …   Law dictionary

  • deflation — 1891, release of air, from DEFLATE (Cf. deflate) + ION (Cf. ion). In reference to currency or economic situations, from 1920 …   Etymology dictionary

  • deflation — ► NOUN 1) the action or process of deflating or being deflated. 2) reduction of the general level of prices in an economy. DERIVATIVES deflationary adjective …   English terms dictionary

  • deflation — [dē flā′shən, diflā′shən] n. 1. a deflating or being deflated 2. a reduction in the general level of prices as a result of a severe decline in economic activity 3. Geol. erosion by the wind: See INFLATION deflationary adj …   English World dictionary

  • Deflation — For other uses, see Deflation (disambiguation). Not to be confused with Disinflation. Economics …   Wikipedia

  • Deflation — Unter Deflation versteht man in der Volkswirtschaftslehre einen allgemeinen, signifikanten und anhaltenden Rückgang des Preisniveaus für Waren und Dienstleistungen. Inhaltsverzeichnis 1 Auswirkungen 1.1 Direkte Auswirkungen 1.2 Indirekte… …   Deutsch Wikipedia

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