Deflation describes a sustained decline in the general price level of goods and services.
Deflation means that money’s purchasing power rises across the economy, on average. It is different from a temporary price drop for one product or from disinflation, which means inflation is slowing while prices are still generally increasing.
Deflation can be harmful when households and businesses postpone purchases in expectation of lower prices. Falling revenues can make debts harder to repay in real terms, potentially leading to defaults, weaker investment, and further reductions in demand.
Deflation is not always caused by the same process. It can arise from collapsing demand, severe financial stress, or rapid productivity and supply improvements. The late 19th century and the Great Depression included important historical episodes of falling prices.