A mistake evaluating whether deflation was caused by a demand-side factor or a supply-side factor in my economics test got me thinking more deeply about deflation as a concept, so I reached out to professionals — and this is what they had to say.

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-- if deflation is limited to a few components within a price index, it's not a big problem, and, of course, will be welcomed by consumers, though not by producers.
-- but widespread and lasting deflation is a sign of an overly weak economy, and it can be a hard problem to resolve, especially if people believe prices are going to keep falling and thereby delay spending, deepening the weak demand problem and the deflation itself.
- Jared Bernstein

Deflation means prices are falling which means demand is less than supply. Less demand is usually when economy is going into a recession. People are out of job and are thus reducing their consumption to save one money which leads to less demand and hence falling prices.  Increase in supply leading to deflation is rare. Deflation is a symptom of an ailing economy or an economy that is not growing and creating more employment opportunities

 

Waqas Ahmed Bajwa, Government offical from Pakistan