Deflation occurs when prices for goods and services generally decrease over time instead of increasing, as typically seen with inflation. It means that the purchasing power of money increases, enabling people to buy more with the same amount. While this may seem beneficial, excessive deflation can lead to economic challenges.
It can cause reduced consumer spending as people wait for even lower prices, potentially slowing down economic growth. To maintain a stable economy, central banks and governments strive to balance and prevent extreme deflation or inflation.
