Deflation is an economic term that refers to a decrease in the general price level of goods and services. This means that, over time, money can buy more than it could before, leading to increased purchasing power for consumers. However, deflation can also signal economic problems, such as reduced consumer spending and lower business profits. When deflation occurs, businesses may cut prices to attract customers, which can lead to lower wages and job losses. This cycle can create a challenging environment for the economy, as people may delay purchases, expecting prices to fall further. Central banks, like the Federal Reserve, often try to combat deflation through monetary policy measures.