Deflation
Deflation is a fall in the general price level over a period, commonly reflected in a negative inflation rate. It differs from disinflation, which is a reduction in a still-positive inflation rate. Causes and consequences matter: broad weak demand can depress spending and make fixed nominal debts harder to service, while productivity improvements may reduce some prices without the same economic conditions.
Worked example
A comparable price index falls from 125 to 122.5 in a year. Its inflation rate is −2%, indicating deflation for that index over the period. A fall from 5% inflation to 2% would instead mean prices still increased.
Common mistake
Do not infer deflation from cheaper electronics alone or assume falling inflation means all prices are falling.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | BT | Supporting | September 2026–June 2027 |
| FIA | FBT | Supporting | September 2026–June 2027 |