Deflation refers to a general decrease in the prices of goods. To understand it, we need to distinguish between inflation and deflation.

Deflation occurs when there is a negative inflation rate, which is below zero percent. In the example of 2020 to 2021, we see our inflation tends to negative levels, showing signs of deflation.

Deflation can occur due to a decrease in the Consumer Price Index (CPI). If the CPI decreases, it means that there is an overall decrease in prices. However, we need to take into account that in 2020, this decrease is due to the economic recession caused by the COVID-19 pandemic.

While some people may see deflation as a positive thing because the prices of goods fall, it can actually bring risks to the economy. During deflation, many people tend to delay purchases because they think that prices will continue to fall. This can result in a decline in overall economic activity.

Deflation not only involves a drop in prices, but can also have a negative impact on economic stability. Therefore, we need to understand that deflation, despite appearing as a drop in prices, can be a challenge to economic growth.