A general fall in price levels caused by a decline in the supply of money or credit or by a fall in demand and spending. Individuals and companies will postpone making purchases in the expectation of lower prices in future. It can lead to severe economic recession and to high levels of unemployment. Central banks may respond by cutting official interest rates close to zero and increasing the money supply in an attempt to stimulate an increase in prices.

See also: Disinflation, Inflation, Quantitative Easing, Central Bank