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When the overall price level decreases so that inflation rate becomes negative it is called deflation.
Deflation. Deflation is a widespread fall in prices just as inflation is a widespread increase in prices. It ought to be expected given the precedent set in the aftermath of the last global economic downturn. It is the opposite of the often encountered inflation. Deflation is a contraction in the supply of circulated money within an economy and therefore the opposite of inflation.
In times of deflation the purchasing power of currency and wages are. Nevertheless there is often a link between monetary and price deflation so monitoring the annual percentage change in consumer prices is useful. In economics deflation is a decrease in the general price level of goods and services. Inflation is an increase in the general prices of goods and services in an economy.
A reduction in money supply or credit availability is the reason for deflation in most cases. The proper definition of inflation or deflation refers to the monetary side. Rather deflation is a sign that something is seriously out of whack with the economy. Reduced investment spending by government or individuals may also.
Deflation conversely is the general decline in prices for goods and services indicated by an inflation rate. These directions of travel means inflation is highly likely. Deflation is what most forecasters are expecting to see in the aftermath of this crisis. Deflation occurs when asset and consumer prices fall over time.
And deflation isnt easy to fix. In theory modest deflation could aid an economic recovery by making goods and services cheaper. That is an expansion or contraction in the amount of money and credit in an economy. This allows more goods and services to be bought than before with the same amount of currency.
Deflation makes the situation worse inflation makes the situation less bad. Deflation occurs when the inflation rate falls below 0 a negative inflation rateinflation reduces the value of currency over time but sudden deflation increases it.
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