Definition

1. Noun:
   • An economic condition of deflation where prices and wages fall at an accelerating rate, while the value of currency increases: A "deflationary spiral" describes a self-reinforcing cycle in an economy. As prices fall, consumers delay purchases expecting them to become cheaper, which reduces demand. This forces businesses to cut prices further and reduce wages or lay off workers, leading to even lower demand and further price declines.

Usage

• The term is used primarily in economics and finance to describe a severe and worsening deflationary situation.
• It is often discussed in contrast to an "inflationary spiral."
• It typically describes a macroeconomic phenomenon affecting an entire economy or a major sector.

Examples

• Noun:
  • The country's economy entered a deflationary spiral after the financial crisis, with falling prices leading to widespread unemployment.
  • Central banks fear a deflationary spiral more than moderate inflation because it is very difficult to stop.
  • Economists warned that the persistent drop in consumer spending could trigger a deflationary spiral.

Advanced Usage

• "to be caught in a deflationary spiral": to be trapped in this economic cycle.
  • The manufacturing sector was caught in a deflationary spiral for nearly a decade.
• "to trigger/avoid a deflationary spiral": to cause or prevent this cycle from starting.
  • The government's stimulus package was designed to avoid a deflationary spiral.

Variants and Related Words

• Deflation (n): A general decline in prices for goods and services, often associated with a reduction in the supply of money and credit.
  • The period was marked by severe deflation.
• Deflationary (adj): Tending to cause or characterized by deflation.
  • The new policy had a deflationary effect on the economy.

Synonyms

• Downward price spiral: A less technical term for a similar concept.
• Deflation cycle: A simpler term emphasizing the cyclical nature.

Antonyms

• Inflationary spiral: A self-reinforcing cycle where rising prices lead to demands for higher wages, which leads to further price increases.
  • The central bank raised interest rates to combat the inflationary spiral.

Noun

1. an episode of deflation in which prices and wages decrease at an increasing rate and currency gains in value