Glossary of Terms

Deflation 2019-06-13 08:00:00

Deflation

Deflation is a term used to describe a scenario in which the price for goods and services declines, or when the inflation rate falls below 0 percent.

Experts believe deflation can be caused by a number of factors, but the two predominant causes of deflation are a decline in aggregate demand and increased productivity. Declining aggregate demand will drive the price for goods and services lower as suppliers seek to offer their goods or services at a price that will incentivize consumers to buy. Increasing productivity can also cause deflation. Companies that become more efficient by minimizing production costs have the option to pass on savings to consumers with lower prices than competitors who may not yet have been able to drive the cost of production down.