What causes deflation?

Deflation happens when there is less money in circulation in the economy. This happens when consumer spending reduces a lot. As a result companies will start reducing the prices of goods as services. You can read about the Inflation in Economy- Types of Inflation, Inflation Remedies [UPSC Notes] in the given link.

Japan had experienced deflation in the 1990s, and the United States of America had experienced deflation in the 1930s. The decline in prices can also be caused by tighter monetary policy of central banks, failure in the stock markets, reduction in government spending.

Further readings:

  1. Inflation Targeting: Methods, Drawbacks and Benefits
  2. Indian Economy Notes For UPSC Exam [Download PDFs]

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