Deflation
A sustained fall in the general price level—raising real debt burdens and sometimes depressing spending if people expect further declines.
Mild deflation can accompany rapid productivity growth if nominal wages adjust; harmful deflation—where prices and incomes fall together with sticky debts—featured in the Great Depression and troubled Japan for years. Price indexes can mask sectoral divergence: goods prices fall while housing or services stay stickier.
Central banks usually target low positive inflation to keep real interest rates maneuverable and avoid downward wage rigidities magnifying unemployment.
Opposite problem from inflation
Zero lower bounds on interest rates complicate fighting deflation—making fiscal policy and unconventional monetary tools more salient.