Our word of the day is “Deflation” Deflation is the reduction of prices of goods,

and although deflation may seem like a good thing when you’re standing at the checkout

counter, it’s not. Rather, deflation is an indication that economic conditions are

deteriorating. Deflation is usually associated with significant unemployment, which is only

corrected after wages drop considerably. Furthermore, businesses’ profits drop significantly during

periods of deflation, making it more difficult to raise additional capital to expand and

develop new technologies. “Deflation” is often confused with “disinflation.”

While deflation represents a decrease in the prices of goods and services throughout the

economy, disinflation represents a situation where inflation increases at a slower rate.

However, disinflation does not usually precede a period of deflation. In fact, deflation

is a rare phenomenon that does not occur in the course of a normal economic cycle, and

therefore, investors must recognize it as a sign that something is severely wrong with

the state of the economy.