Deflation is a decline in the overall average level of prices in a region or its economy. Deflation is the exact opposite of inflation (a rise in prices that gives the feeling that the value of a certain currency or money, in general, has declined).
Deflation happens when prices of a wide range of products continue to fall in a certain region of the world. A good number of factors can contribute to this outcome and the consumers love the drop in price.
Naturally, the relation between supply and demand directly contributes to determining product prices. Often deflation happens when a nation’s production increases a great deal very suddenly.
Technological advancement is one of the major reasons behind deflations in this day and age. When a nation is able to ensure a higher volume of production that is far greater than the demand, the prices drop.
For example, if the cauliflower you’ve bought two days ago for $2 is suddenly going for 20 cents today, that must be because there was an abundance in production and hence, the supply was far greater than the demand.
Use of the Term in Sentences:
- Deflation often makes the wages of the labourers involved in the production.
- The value of the currency goes up when deflation hits.
- The exact root of deflation is very hard to determine since there is a variety of factors that contribute to the result.