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The general and prolonged decrease in the price level of goods and services, caused by the reduction of spending which originates with a fall in economic growth, affecting aspects such as employment and the production of goods and services. It is the inverse situation of inflation.

Deflation decreases the value of money over time, allowing customers to buy more goods than they would have been able to in another period of time with the same amount of money. Deflation is caused by a shift in the supply

• Demand curve because of a fall of the aggregate level of demand. With the decrease in the level of demand, companies will find themselves obliged to lower prices so that the demand level will increase again. From the consumers´ point of view, prices will keep decreasing so they prefer to wait, thinking they will be able to buy more goods with less money. This causes the companies´ profit to be reduced. This situation will stabilize as soon as price lowers enough for consumers and suppliers to find equilibrium on the supply
• Demand curve again. Other options to stabilize the economy by pushing up the aggregate level of demand is to start a series of stimulus programs, either from the central bank, by expanding money supply, or by the fiscal authority by borrowing at interest rates below those available to private entities, allowing families to take loans with better conditions which promotes spent, putting more money in circulation. The term deflation should not be confused with disinflation, which is a slow-down in the inflation rate, instead of being a negative inflation.