Definition of "Deflation"

An economic condition that is characterized by the decline in the prices of goods and services (the reverse of inflation). Also see inflation.

A persistent price decline of goods and services--the inverse to inflation. Deflation usually occurs during a recession and is characterized by supply exceeding demand, and while there is increased buying power, the amount of currency in circulation is greatly reduced. Marked deflation generally affects production and employment negatively. Deflation should not be confused with disinflation, which is a result of a slow down in the rate that prices increase.