Deflation
A sustained fall in the general price level, the opposite of inflation.
Formula
Test: the price index declines from one period to the corresponding earlier one, giving a negative inflation rate
Unit
%
In depth
Falling prices sound welcome and are economically dangerous, because they encourage consumers to postpone purchases and raise the real burden of debt — a fixed loan becomes harder to repay when incomes and prices are falling. This is the deflationary spiral that made Japan's experience after 1990 so persistent. It also removes the central bank's main tool, since nominal rates cannot fall far below zero while real rates stay high. India has not experienced sustained deflation, though the wholesale price index has been negative for stretches.
Worked example
A ₹50,00,000 loan at 9% during 3% deflation carries a real cost of about 12%, while the borrower's income is falling. The same loan during 6% inflation carries a real cost near 3%.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Deflation” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.