What is deflation?

Deflation is in economics, the opposite term to inflation, and serves to define a fall in the prices of goods and services, in a generalized way in a country. Deflation is, in general, a direct consequence of a country's economic recession, and caused by a decrease in prices due to the scarcity of Demand for everyday products has meant that sellers have had to systematically lower the price to get buyers to return to purchase products, this drop in prices must be maintained for at least 6 to 12 months to consider that the country affected by the drop is in deflation.

Author: Val Lawless

The causes of deflation

Although it has previously been said that the main cause of deflation is economic recession, there are two factors that can influence a country being affected by deflation.

1. Low demand. When families see their purchasing power greatly diminished compared to current prices, they are buying less, and traders are forced to lower the price to continue selling.
2. Excess supply.
   In this case, it is the producers who manufacture too much, the excess supply entails greater competition, and therefore, lowering of products to be able to market the entire supply of goods or services.

Consequences of deflation

The fall in prices, by itself, would not be negative, but associated with it are a series of effects that function as a vicious circle and that are decisive for the economies of the countries:

1. Low circulation of money. The price drop becomes a vicious circle and the more prices fall, the more customers wait. consumers that go down, in this way sellers are forced to continue lowering prices to have demand.
2. Prolonged deflation. Falling prices for long periods produces losses in companies, which cannot be maintained at such prices. low, and therefore increases unemployment, causing less purchasing power, and causing it to move even less money.
3. The interests. Companies and individuals who are now unable to pay their debts, apply for loans, which, since they cannot be paid, increase with interest.

There are two ways to solve a deflation, on the one hand, prices can fall to a point where consumers and companies begin to see money circulate, on the other hand, the policy has measures to avoid it and minimize the risk of it being produce.