Causes of Price Deflation

This short revision video looks at demand and supply-side causes of price deflation

Price deflation is a sustained decrease in the general price level of goods and services. It can be caused by a variety of factors, including:

• An increase in productivity and supply, which leads to a decrease in the cost of goods and services
• A decrease in demand, which can lead to a decrease in prices as businesses lower prices in order to attract customers
• A decrease in the money supply, which can lead to a decrease in prices as there is less money available to bid up prices
• An increase in competition, which can lead to lower prices as businesses compete for customers
• A decrease in labour costs, which can lead to lower prices as businesses' costs decrease.

It's important to note that deflation can have negative effects on the economy as it can lead to lower economic growth, higher unemployment and less investment.