Deflation

The opposite of inflation, and measured by the same instruments: a basket of goods and services is priced repeatedly, and the index built from those prices reads lower than it did a year earlier. The reading has to be negative and it has to persist. One negative month inside a rising series is noise in the measurement, not a change in the price level.

Deflation and disinflation are routinely swapped for one another, and they are not the same thing. Disinflation is inflation that is slowing while still running above zero, so prices are rising less quickly. Deflation is prices falling. An economy can be in disinflation for years without ever reaching deflation, and reports frequently describe the first while using the word for the second.

The reason policymakers treat it as the more difficult problem is that it is self reinforcing in a way inflation is not. Falling prices raise the real burden of debts fixed in money terms, purchases can be postponed at no cost, and demand weakens further. The policy response runs out of room: a nominal interest rate cannot fall far below zero, so once rates approach that boundary the response shifts to asset purchases and other balance sheet operations. Whether those work is one of the genuinely open questions in monetary economics, argued from a small number of episodes.