Deflation is when prices across an economy fall over time, meaning money becomes more valuable because it can buy more than it could before. If a video game costs $50 this year but only $45 next year (not because of a sale, but because prices everywhere are dropping), that's deflation at work.

While falling prices might sound great, deflation can actually cause serious economic problems. When people expect prices to keep falling, they wait to buy things, thinking they'll get better deals later. Businesses earn less money, so they cut workers' pay or lay people off. Those workers then have less money to spend, causing prices to fall even further. It becomes a vicious cycle that's hard to break.

Deflation is the opposite of inflation, which is when prices rise over time. Most economists consider mild inflation healthier for an economy than deflation. The United States experienced devastating deflation during the Great Depression of the 1930s, when prices fell by about 25% and millions of people lost their jobs. Japan struggled with deflation for decades starting in the 1990s, which slowed its economy.