Deflation increases the purchasing power of money
Franz Pfluegl/Fotolia
Deflation is said to exist when the average price level within an economy falls over time. Deflation increases the purchasing power of money — more goods and services than before can be bought using a unit of domestic currency. Deflation is a negative rate of inflation.
Deflation is often confused with falling inflation. For example, during the second half of 2008 and into 2009, the UK’s rate of inflation, as calculated by the government and the Bank of England’s official measure of inflation — the consumer price index (CPI) — fell.
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