verðfalli

Verðfall is an Icelandic economic term describing a fall in prices. It can refer to a general decline in the overall price level, i.e., deflation, or to a drop in the price of a specific good or service. The concept is the opposite of verðbólga, which denotes inflation or rising prices. In economic discussion, verðfall is often used to describe sustained decreases in price levels rather than isolated price drops.

Causes of verðfall include weak aggregate demand, excess productive capacity, or external factors such as a fall in global commodity prices. A stronger currency can also reduce the price of imported goods, contributing to lower consumer prices. Deflation can emerge from a combination of lower demand and improved productivity, or from credit and financial conditions that suppress spending and investment.

The effects of verðfall are nuanced. While lower prices can increase the purchasing power of consumers in the short term, persistent deflation raises the real value of debt and can reduce spending and economic activity, potentially leading to a deflationary spiral if expectations of further declines set in. Central banks and governments may respond with expansionary monetary or fiscal policies to stabilize demand and price levels.

Measurement of price changes typically uses consumer price indices (CPI) and other inflation gauges compiled by statistical agencies. In Iceland, Statistics Iceland (Hagstofa Íslands) publishes CPI data that help track trends in verðfall and inflation.

Notes: verðfalli is a grammatical form of verðfall in Icelandic and appears in sentences where the word is declined, not a separate economic concept.