Deflation is when prices in an economy start falling. It’s the opposite of inflation and typically a bad sign. If an economy is healthy, people should be able to afford to pay a little bit more for things each year. But if they can’t do that, or maintain what they were paying (so sellers have to reduce prices), it suggests demand is too low (effectively, the economy is too weak). That can lead to a downward spiral as people and businesses stop buying things from each other (since the price is likely to be cheaper tomorrow) – which further hurts economic growth. In almost every scenario, deflation is something to be avoided.

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