Deflation
A sustained decrease in the general price level of goods and services.
What is Deflation?
Deflation is a sustained decline in the general price level of goods and services, resulting in an increase in the purchasing power of money. While falling prices may seem beneficial, deflation is typically associated with weak economic demand, high unemployment, and falling wages. Deflation can trigger a deflationary spiral: falling prices lead consumers to delay purchases, reducing demand, causing further price cuts, more layoffs, and even lower demand. Japan's "Lost Decade" (1990s–2000s) is the most cited modern example of sustained deflation and its economic consequences.
Example
Japan's CPI fell repeatedly during the 1990s and 2000s. In 1999, Japan's consumer prices declined 0.3% while GDP stagnated — a combination that kept the economy in a prolonged low-growth trap despite near-zero interest rates.
Source: IMF — Deflation in Japan