Editing Deflation (section)

{{short description|Decrease in the general price level of goods and services}}
{{other uses}}
{{distinguish|text=[[Disinflation]], a slowdown in the inflation rate}}
{{macroeconomics sidebar}}
In [[economics]], '''deflation''' is a decrease in the general [[price level]] of goods and services.<ref>Robert J. Barro and Vittorio Grilli (1994), ''European Macroeconomics'', chap. 8, p. 142. {{ISBN|0-333-57764-7}}</ref> Deflation occurs when the [[inflation]] rate falls below 0% (a negative [[inflation rate]]). Inflation reduces the value of [[currency]] over time, but deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from [[disinflation]], a slowdown in the inflation rate; i.e., when inflation declines to a lower rate but is still positive.<ref>{{Cite book| last1 = O'Sullivan | first1 = Arthur | author-link = Arthur O'Sullivan (economist) | first2 = Steven M. | last2 = Sheffrin | author-link2 = Steven M. Sheffrin | title = Economics: Principles in Action | url = https://archive.org/details/economicsprincip00osul | url-access = limited | publisher = Pearson Prentice Hall | year = 2003 | location = Upper Saddle River, New Jersey | page = [https://archive.org/details/economicsprincip00osul/page/n359 343] | isbn = 0-13-063085-3}}</ref>

Economists generally believe that a sudden deflationary shock is a problem in a modern economy because it increases the [[Real versus nominal value (economics)|real value]] of [[debt]], especially if the deflation is unexpected. Deflation may also aggravate recessions and lead to a '''deflationary spiral''' {{see below|[[#Deflationary spiral|later section]]}}.<ref>{{cite news|last1=Harry Wallop|first1=Harry Wallop|title=Deflation: why it is dangerous|url=https://www.telegraph.co.uk/finance/economics/3478630/Deflation-why-it-is-dangerous.html |archive-url=https://ghostarchive.org/archive/20220112/https://www.telegraph.co.uk/finance/economics/3478630/Deflation-why-it-is-dangerous.html |archive-date=2022-01-12 |url-access=subscription |url-status=live|access-date=20 September 2016|work=The Daily Telegraph|date=18 November 2008}}{{cbignore}}</ref><ref name="EconomistDeflation">{{cite journal |title=The Economist explains: Why deflation is bad |url=https://www.economist.com/blogs/economist-explains/2015/01/economist-explains-4 |journal=Economist |publisher=Economist magazine |access-date=20 September 2016|date=7 Jan 2015}}</ref><ref>{{cite web|last1=Krugman|first1=Paul|title=Why is Deflation Bad?|url=https://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/|work=The New York Times|date=2 August 2010|access-date=20 September 2016}}</ref><ref>{{cite news|last1=Walker|first1=Andrew|title=Is deflation such a bad thing?|url=https://www.bbc.com/news/business-28009477|access-date=20 September 2016|work=BBC|date=29 January 2016}}</ref><ref>{{cite web|last1=Thoma|first1=Mark|title=Explainer: Why is deflation so harmful?|url=http://www.cbsnews.com/news/explainer-why-is-deflation-so-harmful/|website=Moneywatch|date=8 April 2014 |publisher=CBS|access-date=20 September 2016}}</ref><ref>{{cite journal|last=Hummel|first=Jeffrey Rogers|title=Death and Taxes, Including Inflation: the Public versus Economists|date=January 2007|journal=Econ Journal Watch|url=https://econjwatch.org/File+download/139/2007-01-hummel-com.pdf?mimetype=pdf}}</ref><ref>{{cite journal|last1=Blanchard|first1=O.|last2=Dell'Ariccia|first2=G.|last3=Mauro|first3=P.|title=Rethinking macroeconomic policy.|journal=Journal of Money, Credit and Banking|date=18 August 2010|volume=42|issue=1|pages=199–215|doi=10.1111/j.1538-4616.2010.00334.x|citeseerx=10.1.1.153.7293|s2cid=14824203}}</ref>

Some economists argue that prolonged deflationary periods are related to the underlying technological progress in an economy, because as productivity increases ([[Total factor productivity|TFP]]), the cost of goods decreases.<ref>{{cite report|last1=Bordo|first1=Michael D.|last2=Filardo|first2=Andrew J.|date=2005-11-01|title=Deflation in a Historical Perspective|url=http://www.bis.org/publ/work186.pdf|language=en|publisher=Bank for International Settlements|location=Rochester, NY|doi=10.2139/ssrn.860404|ssrn=860404|s2cid=153344185}}</ref>

Deflation usually happens when supply is high (when excess [[production (economics)|production]] occurs), when demand is low (when [[consumption (economics)|consumption]] decreases), or when the money supply decreases (sometimes in response to a [[recession|contraction]] created from [[speculation|careless investment]] or a [[credit crunch]]) or because of a [[net capital outflow]] from the economy.<ref>{{Cite web|url=https://www.investopedia.com/ask/answers/111414/what-causes-negative-inflation-or-deflation.asp|title = What Causes Negative Inflation (Deflation)?}}</ref> It can also occur when there is [[Flooding the market|too much]] [[competition]] and too little [[monopoly|market concentration]].<ref>{{Cite web|url=https://thismatter.com/economics/market-models.htm|title = Market Models: Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly}}</ref>{{better source needed|date=July 2023|reason=This is just some guy's blog. It doesn't make sense.  Too much competition and too little market concentration mean firms in the industry do not have opportunity to earn above-normal profit.  It will not lead to deflation of an economy.}}