de·​fla·​tion | \ di-ˈflā-shən How to pronounce deflation (audio) , 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 \ di-​ˈflā-​shə-​ˌner-​ē How to pronounce deflationary (audio) , ˌdē-​ \ adjective

Examples of deflation in a Sentence

Economists worry that deflation will bring the country into recession.

Recent Examples on the Web

The Fed targets a modest amount of inflation as a cushion against deflation, a destabilizing drop in prices and incomes. Washington Post, "Optimistic US consumers boost spending 0.6% in July," 30 Aug. 2019 The top job at the YMCA of Metropolitan Detroit experienced compensation deflation after the 2014 retirement of longtime president and CEO Reid Thebault, who topped out at $379,124 the previous year. Jc Reindl, Detroit Free Press, "Southeast Michigan nonprofit CEO pay has jumped. Here's why," 23 Aug. 2019 Investors fear that the world is turning into Japan, with a torpid economy that struggles to vanquish deflation, and is hence prone to going backwards. The Economist, "Markets are braced for a global downturn," 17 Aug. 2019 Most of those losses occurred well before ECB chief Mario Draghi launched negative rates in June 2014 in a push to accelerate Europe's economy and prevent deflation. Matt Egan, CNN, "How negative interest rates helped turn Deutsche Bank into a disaster," 29 July 2019 The Fed has not consistently hit its 2 percent target for inflation, which is meant to guard against economy-damaging deflation, since formally adopting the goal in 2012. Jeanna Smialek,, "Fed officials make case for cutting interest rates," 21 June 2019 What’s more, low rates bring the economy much closer to deflation, should a brutal recession blow in. Larry Light, Fortune, "The Global Collapse in Interest Rates May be Setting Investors Up for a Crash," 9 Aug. 2019 On baseball In the span of four pitches, Red Sox pitching coach Dana LeVangie went from elation to deflation. Alex Speier,, "Dana LeVangie continues search for answers to solve pitching staff’s inconsistency," 1 Aug. 2019 There’s market risk, withdrawal rate risk, inflation risk, deflation risk, long-term care need risk, change in tax-code risk, regulatory risk and, of course, longevity risk. Washington Post, "When it comes to annuities, there are pros, cons and certain levels of risk," 6 July 2019

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

12 Sep 2019

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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

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to make a temporary encampment

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