Deflation

In economics, deflation is an increase in the real value of the monetary unit of account, as reflected in a decrease in the general price level of goods and services exchanged, measurable by broad price indices.
Deflation occurs when the inflation rate falls below 0% and becomes negative. While inflation reduces the value of currency over time, deflation increases it. This allows more goods and services to be bought than before with the same amount of currency, but means that more goods or services must be sold for money in order to finance payments that remain fixed in nominal terms, as many debt obligations may. Deflation is distinct from disinflation, a slowdown in the inflation rate; i.e., when inflation declines to a lower rate but is still positive.
Economists generally believe that a sudden deflationary shock is a problem in a modern economy because it increases the real value of debt, especially if the deflation is unexpected. Deflation may also aggravate recessions and lead to a deflationary spiral (see later section).
Changes in the money supply that constrain aggregate demand or that remove support for elevated demand may cause the price level to fall. Where the money supply is constrained, the price level must fall before the available money supply is sufficient to support the full activity potential of the economy. In the modern era since the abandonment of the gold standard in the 1930s, monetary policy normally controls the money supply and such constraints. Deflationary episodes have been rare in the modern era. Some economists argue that technological progress in an economy affecting costs across a broad range of products and services may be a factor in prolonged deflationary periods, because as productivity increases (TFP), the cost of goods decreases.