Börsenlexikon: Deflation

In deflation, in contrast to inflation, the general price level declines over several years. More goods and services are offered than are demanded. National banks usually counteract deflation by increasing the money supply. The last major period of deflation was the Great Depression from 1929 to about 1933.

Nowadays, the terms "deflation" and "inflation" are usually defined as a decline or increase, respectively, in a price level measured by a basket of goods. The problem with the content of this formally correct definition is obvious: Only a symptom is described here, namely price changes of a basket of goods that can be manipulated at will. The cause of these price changes remains - deliberately - in the dark. And the composition of the basket of goods as well as the methods of measuring the price changes leave extremely wide scope for obtaining a desired result if necessary. The classic definition of the terms, which used to be generally accepted but is now largely forgotten, starts with the cause. It reads: Deflation (inflation) is a decrease (increase) in the quantity of money and credit.