Define: Deflation

UK Accounting Glossary

Definition: Deflation



What is the dictionary definition of Deflation?

Dictionary Definition


  1. An act or instance of deflating.
  2. economics A decrease in the general price level, that is, in the nominal cost of goods and services as well as wages.
  3. economics, euphemistic An economic contraction.

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Full Definition of Deflation


Deflation is a broad decline in prices. Deflation occurs when the prevailing demand cannot absorb the supply of goods. Companies attempt to stimulate demand by cutting prices, which in turn may lead to cost-cutting wage reductions. The reduction in purchasing power further reduces demand. During periods of deflation, cash is often considered ‘king’ as goods and services are losing value.

Prior to the Bretton Woods Agreement and the elimination of the gold standard, periods of deflation were fairly common. The US economy, for example, endured fourteen consecutive years of deflation in the mid-1800s. Deflation during the 1930s reached a staggering 30% over a four year period. The replacement of asset-backed currencies with paper currencies backed by the “full faith and credit” of governments have significantly reduced the appearance of deflation as there is little impediment to printing more currency. Following the Bretton Woods agreement, the US economy experienced deflation only twice in 60 years. The extended Japanese economic slump of the 1990s, however, demonstrated that deflation remains a concern.


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Deflation. PayrollHeaven.com. Retrieved March 30, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/deflation/

Definition Sources


Definitions for Deflation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 7th February 2020.