The manufacturers then charge merchants more for their finished products. The merchants then raise the prices they charge consumers. Occurs when supply is not adequate to meet demand. This causes higher finished goods prices that merchants must pay leading to higher consumer prices. Is a decline in the prices of goods and services.
Deflation is the opposite of inflation.
When prices are falling due to deflation, economic activity is negatively effected as the price weakness is usually due to very weak demand factors. Deflation is a significant aspect of economic depression as economic recession is accompanied by declining prices and a shrinking economy. Is the term used to describe an economy that is growing very slowly accompanied by high inflation. Usually when the economy is growing slowly the inflation level is low. The Central Bank attempts to control inflation by adjusting the cost of money to member banks by raising or lowering interest rates.