Deflation

Economics

Deflation is the sustained decline in general price levels — opposite of inflation. Sounds appealing (things get cheaper!) but is economically dangerous: consumers delay purchases expecting lower prices, businesses cut investment and labor, debt becomes harder to repay (loans repaid in more valuable dollars). The Great Depression and Japan's 'Lost Decade' (1990s-2000s) exemplify deflation's economic damage. Central banks fear deflation more than moderate inflation. Modern Fed policy targets 2% inflation specifically to avoid deflation. The 2008-2009 crisis briefly produced deflation; the COVID era brought temporary deflation in spring 2020 before stimulus reversed it.