Deflation: its causes and effects Deflation is defined as a general decline in prices, with emphasis on the word “general.” At any given time, especially in a low-inflation economy like that of our recent experience, prices of some goods and services will be falling.
Price declines in a specific sector may occur because productivity is rising and costs are falling more quickly in that sector than elsewhere or because the demand for the output of that sector is weak relative to the demand for other goods and services.