A sustained decrease in the general price level of goods and services.
Deflation is the opposite of inflation—a sustained period where the general price level of goods and services falls, increasing purchasing power. While deflation sounds good (everything costs less), it's actually harmful for economies. Deflation encourages consumers and businesses to delay spending because they expect lower prices, which reduces demand, slows economic growth, and increases unemployment. Companies facing deflation may cut wages and lay off workers. Deflation is rare in modern developed economies; the last significant deflation in the U.S. occurred during the Great Depression. Central banks like the Federal Reserve strongly resist deflation and are more concerned about inflation. Understanding deflation helps explain why central banks target a modest inflation rate (around 2% in the U.S.) rather than zero inflation or deflation.