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Very simply, it’s when prices in an economy start falling. It is the opposite of inflation. And it is, typically, a bad sign: if an economy is healthy, people should be able to afford to pay a little bit more for things each year. But if they can’t do that, and sellers need to reduce prices, it suggests demand is too low (effectively, the economy is too weak). And that can lead to a downward spiral as people and businesses stop buying things from each other – which further hurts economic growth. In almost every scenario, deflation is something to be avoided.

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