02-26-2026, 09:16 AM
Deflation
What is deflation?
The opposite of inflation, deflation occurs when an economy experiences a sustained decline in the price of goods and services. While deflation can sound like a good thing, it can actually be worse than inflation, as consumers may become accustomed to lower prices and feel less inclined to spend money on items that might be cheaper the next day.
Economists identify deflation by examining negative inflation rates using tools like the Consumer Price Index. Shocks to either supply or demand can reduce consumer demand overall, leading to deflation. For instance, when consumer demand is low, it can mean people have less money to spend.
Deflation can also be particularly harmful to people borrowing money, because it increases the real value of their debt and makes it more expensive to repay.
Economists are wary of deflation in part because recessions have historically accompanied it: The United States last experienced a period of deflation during the Great Recession.
> Falling demand and lower costs of production can cause deflation.
> Inflation was a word before deflation was.
> What is quantitative easing?
Quantitative easing (QE) is a monetary policy tool used by central banks when traditional methods, such as lowering short-term interest rates, are no longer effective, typically because rates are near zero. Under QE, a central bank purchases large amounts of financial assets, such as government bonds, corporate bonds, or mortgage-backed securities, from commercial banks and other financial institutions.
This increases the money supply, raises asset prices, and lowers yields, making borrowing cheaper and encouraging spending and investment.
What is deflation?
The opposite of inflation, deflation occurs when an economy experiences a sustained decline in the price of goods and services. While deflation can sound like a good thing, it can actually be worse than inflation, as consumers may become accustomed to lower prices and feel less inclined to spend money on items that might be cheaper the next day.
Economists identify deflation by examining negative inflation rates using tools like the Consumer Price Index. Shocks to either supply or demand can reduce consumer demand overall, leading to deflation. For instance, when consumer demand is low, it can mean people have less money to spend.
Deflation can also be particularly harmful to people borrowing money, because it increases the real value of their debt and makes it more expensive to repay.
Economists are wary of deflation in part because recessions have historically accompanied it: The United States last experienced a period of deflation during the Great Recession.
> Falling demand and lower costs of production can cause deflation.
> Inflation was a word before deflation was.
> What is quantitative easing?
Quantitative easing (QE) is a monetary policy tool used by central banks when traditional methods, such as lowering short-term interest rates, are no longer effective, typically because rates are near zero. Under QE, a central bank purchases large amounts of financial assets, such as government bonds, corporate bonds, or mortgage-backed securities, from commercial banks and other financial institutions.
This increases the money supply, raises asset prices, and lowers yields, making borrowing cheaper and encouraging spending and investment.
