Deflation is a widespread drop throughout the cost of goods and services, usually accompanied by a reduction in the amount of money and credit available in the economy. The buying power of currency rises overtime during deflation. The attraction of various investment possibilities changes depending on whether the economy, price level, and money supply are deflating or increasing. Only a decline in the quantity of money or financial instruments redeemable in money may produce monetary deflation, according to the definition. Central banks, such as the Reserve Bank of India, have the largest effect on the money supply in recent times. Prices of all things tend to decline when the availability of money and credit reduces without a matching drop in economic production. Deflationary times are most typical following extended periods of artificial monetary growth.
Deflation is a general decline in prices in an economy. It is usually triggered by a reduction of the supply of money or credit (bank loans to businesses or individuals). It could also be triggered by reduced spending overall, which in turn makes prices “deflate” to meet the demand. It is probably one of the trickiest situations for an economy because interest rates are usually low when this happens and the Central Bank has very few manes to revert the situation. This is what happened with Japan for over 20 years.