Deflation
MacroDefinition
A long stretch of falling prices, the opposite of inflation. It sounds nice because things get cheaper, but it is actually poisonous for the economy. When prices are falling, shoppers delay purchases (the phone will be cheaper next month), businesses make less profit, and any existing debt becomes harder to pay back because the dollars owed are worth more than when they were borrowed.
The Great Depression is the most famous example: US prices fell about 25% from 1929 to 1933. Central banks fear deflation more than inflation because once it takes hold in peoples' minds, it is very hard to break.
The Great Depression is the most famous example: US prices fell about 25% from 1929 to 1933. Central banks fear deflation more than inflation because once it takes hold in peoples' minds, it is very hard to break.
Example
Japan experienced mild deflation through most of the 1990s and 2000s despite near-zero interest rates from its central bank. Its main stock index, the Nikkei, still has not beaten its 1989 peak in real terms.
Related tool
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