In a previous “Deflation Watch” posting, we showed a May 19 Economist quote that included the sentence, “Britain is now in deflation.”
In April, Britain’s consumer prices had fallen year-over-year for the first time since 1960.
But what is deflation?
First, deflation is not falling prices. Prices may fall even when an economy is healthy.
Having said that, falling prices generally occur during a deflationary trend. But falling prices are simply effects of deflation.
Webster’s says, “Deflation is a contraction in the volume of money and credit relative to available goods.”
The BBC explores the origins of the word “deflation”. Read this excerpt from a May 25 article titled, “The Vocabularist: Where does the word 'deflation' come from?”
Whether to use the word "deflation" caused furrowed brows in the past week when average prices fell for the first time since 1960.
The BBC's economics editor said many economists were "desperately anxious" that he should not use "the 'd' word".
After decades of complaints about inflation, it might seem surprising that people wished to avoid using a word which suggests the opposite. There were concerns that it should only be "deflation" if prices went on falling.
But headline writers anxious for brevity rushed to say Britain was "in deflation" (though no-one ever said it was "in inflation"). Which sounded bad, like "in recession".
Also deflation sounds sad - just as we say a proud or hopeful person is "deflated" by a disappointment. It makes the country seem like a squashy old football lying forgotten in a shed.
"Inflation" is the classical Latin word "inflatio" from "inflo", combining in and flo, meaning blow.
Latin also has "deflo", from flo and de (meaning "from"). The agricultural author Varro writes of impurities in olive oil being "deflatum" - blown away.
Some Roman somewhere may have used the word deflatio (though it is not recorded). But that is not where our word deflation comes from. If it existed in Latin, "deflatio" would have meant "blowing away".
"Inflation" was a word in Latin and other languages for many centuries before "deflation" appeared.
Nor was inflation a very common word in English at first. It rarely meant blowing air into things, but more often had unpleasant overtones which it also had in Latin - sometimes meaning swelling, or flatulence (which also comes from "flo") or excess.
In 19th Century America, "inflation" began to be used to criticise the actions of governments putting too much money into circulation, causing prices to rise. Later it was used loosely to mean the rise in prices itself.
A word for the opposite - both letting air out of something, and restricting money and prices - would be needed sooner or later, but it was only in the 1890s that "deflate" and "deflation" came into use.
You can read the rest of the article by following the link below: http://www.bbc.com/news/blogs-magazine-monitor-32874157