Deflation.
In plain English
Deflation is a sustained decline in the general price level. The dollar buys more next year than this year. While that sounds appealing, deflation usually signals weak demand: people are not buying, so prices fall, so businesses cut wages or jobs, so people buy less, and the cycle compounds downward. Central banks treat deflation as a more dangerous problem than mild inflation because once it sets in, it can be hard to break.
01Why it matters
Deflation makes debt heavier in real terms (a fixed mortgage payment is harder to make when wages are falling) and rewards holding cash over investing. The Federal Reserve's 2% inflation target exists partly to keep a buffer against tipping into deflation.
02The math, step by step
Japan experienced periods of deflation from the mid-1990s through the 2010s, with consumer prices essentially flat or falling for two decades while wages stagnated. The U.S. experienced brief deflation in 2009 during the financial crisis (about -0.4% for the year) and again briefly in 2015.
03What this is NOT
Disinflation means inflation is slowing (e.g., 6% drops to 3%) but prices are still rising. Deflation means prices are actually falling (negative inflation). Disinflation is normal; deflation is rare and worrying.
04Receipts
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