Deflation is a phase of economy wherein the general price level of goods and services decrease. It can be said that the situation of deflation is the opposite of inflation, as in the time of inflation prices of goods and services increases. In the case of deflation, the inflation rate is as low as 0%, which means that good and services are offered at the cheapest rate. However, due to declined demand in the economy results in subsequent lower prices.

Deflation is very less often phenomenon but the difficult one to tackle. Periods of high unemployment and economic depression often coincide with deflation. The government can step in by increasing the money supply through its monetary policy to get back the economy from deflation.