Deflation is an economic term that refers to a general decline in prices for goods and services, often caused by a decrease in the supply of money or credit. During deflation, the purchasing power of currency increases, as the same amount of money can buy more goods than before. This can lead to a slowdown in economic activity, as consumers may delay spending due to expectations that prices will continue to fall. Deflation is typically seen as negative for an economy, as it can result in higher levels of unemployment and reduced consumer spending. Central banks often try to combat deflation by increasing the money supply or lowering interest rates, in order to stimulate economic growth.