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Deflation refers to a measured decrease in the prices of goods and services over time. This can be defined as either a decrease in the Consumer Price Index (CPI), or as a contraction of the money supply. In a money supply contraction, the value (or "purchasing power") of the currency increases. The opposite of deflation is inflation.

Deflation is particularly troubling to economic planners and policy makers. When people expect falling prices, they become less willing to spend, and in particular less willing to borrow. Furthermore, falling prices worsen the position of debtors, by increasing the real burden of their debts. [1]


  1. Why is Deflation Bad?. Paul Krugman, New York Times.