Deflation or Negative Inflation: Causes and Effects

Negative inflation, also known as deflation, occurs when the general price level of goods and services in an economy decreases over time. This phenomenon can result from various factors, including reduced consumer demand, increased productivity, or decreased money supply. Factors like technological advancements and a lack of consumer confidence can lead to reduced spending, pushing prices down. Central banks may also play a role by tightening monetary policy, reducing the money supply. Deflation can have adverse effects, such as decreasing consumer spending and increasing the real burden of debt. Policymakers often aim to maintain low, positive inflation to support economic stability.

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