de·​fla·​tion | \ di-ˈflā-shən, ˌdē-\

Definition of deflation

1 : an act or instance of deflating : the state of being deflated
2 : a contraction in the volume of available money or credit that results in a general decline in prices
3 : the erosion of soil by the wind

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Other Words from deflation

deflationary \ -​shə-​ˌner-​ē \ adjective

Examples of deflation in a Sentence

Economists worry that deflation will bring the country into recession.

Recent Examples on the Web

Barring a jolt from a 2014 tax increase, consumer prices have been stubbornly sticky—although Japan is at least no longer enduring deflation. Mike Bird, WSJ, "Japan’s Markets Have Been Transformed by the Overwhelming Abenomics Wave," 20 Sep. 2018 Debts mount because everyone, rather than just the strong, is encouraged to borrow and spend, the exact opposite of what debt deflation should inspire. WSJ, "Raising Rates to Cure a Recession You Cause," 3 Dec. 2018 In 2015, the Fed was willing to hold fire to let China fight off large-scale capital outflows and a debt-deflation trap. Nathaniel Taplin, WSJ, "U.S. Inflation Data Key to Global Markets’ Next Moves," 11 Oct. 2018 Recent innovations like ecommerce and fracking have strengthened deflation’s grip on prices, people, and jobs. Dave Margulius, Fortune, "Commentary: Inflation Shook the Markets This Week—But Deflation Is the Force to Watch," 8 Feb. 2018 Inflation has remained subdued in the country, which has experienced decades of deflation and stagnation. Wsj Staff, WSJ, "Global Economy Week Ahead: Japan and U.S. Inflation, Bank of Korea Meeting," 8 July 2018 It's been mostly closed since Friday due to ongoing seismic activity, summit deflation and worries about a possible steam explosion at the summit of the volcano. Gene Sloan, USA TODAY, "Hawaii volcano: Kilauea eruption disrupts cruises to Big Island," 15 May 2018 Europeans fear economic deceleration, and deflation. Ken Fisher, USA TODAY, "Michelle Wolf, Kanye West distract us from the good news about the economy," 6 May 2018 Gordon struggled offensively before and after the injury, but combined with Yordano Ventura’s death (more on that in a minute) there was an unmistakable deflation of emotion for a team that had always relied so heavily on it. Sam Mellinger, kansascity, "The State of the Royals, Part 1 of 2: How did they get here?," 12 July 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'deflation.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of deflation

1891, in the meaning defined at sense 1

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Statistics for deflation

Last Updated

30 Dec 2018

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The first known use of deflation was in 1891

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Financial Definition of deflation

What It Is

Deflation describes the general decline in the prices of goods and services in an economy, which in turn increase the purchasing power of money. It is the opposite of inflation, but is not the same as disinflation (which is the slowing of inflation).

How It Works

Any way you slice it, deflation is caused by a significant drop in demand. Lots of things can cause this decrease in demand: recession, tighter monetary policy, civil unrest, terrorism, or changes in laws are common triggers. Many economists believe that these causes are often accompanied by a heavy psychological element. As consumers and companies grow more pessimistic about the economy or their standard of living, they tend to hoard cash instead of spending it. Likewise, banks tend to slow their lending and companies delay their expansion plans. These reductions in spending and lending lead to a decrease in the demand for goods and services. Less demand means producers, retailers, and other sellers of goods and services must lower their prices to entice buyers.

Although less expensive goods and services may seem like a good thing for consumers, it only marks the beginning of deflation's damaging downward spiral. The following sequence describes the dangers of deflation and the dangerous cycle it can create:

Why It Matters

Although many people laud lower across-the-board prices, prolonged periods of falling prices can wreak havoc on the economy by starting a downward economic spiral, resulting in fewer jobs, less income and a potential period of recession. Because the government can have such a tremendous impact on the economy in this vein, central banks like the Federal Reserve keep a close eye on economic measurements that will alert them of the threat of deflation.

Source: Investing Answers



English Language Learners Definition of deflation

: a decrease in the amount of available money or credit in an economy that causes prices to go down

: the act or process of letting air or gas out of (something)

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More from Merriam-Webster on deflation

Spanish Central: Translation of deflation

Nglish: Translation of deflation for Spanish Speakers

Britannica English: Translation of deflation for Arabic Speakers Encyclopedia article about deflation

Comments on deflation

What made you want to look up deflation? Please tell us where you read or heard it (including the quote, if possible).


tremendous in size, volume, or degree

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