Deflation, or negative inflation, happens when prices fall because the supply of goods is higher than the demand for those goods. This is usually because of a reduction in money, credit or consumer spending. This can be caused by a combination of different factors, including having a shortage of money in circulation, which increases the value of that money and, in turn, reduces prices; having more goods produced than there is demand for, which means businesses must decrease their prices to get people to buy those goods; not having enough money in circulation, which causes those with money to hold on to it instead of spending it; and having a decreased demand for goods overall, therefore decreasing spending.

While it may seem like lower prices are good, deflation can ripple through the economy, such as when it causes high unemployment, and can turn a bad situation, such as a recession, into a worse situation, such as a depression.

Deflation can lead to unemployment because when companies make less money, they react by cutting costs in order to survive. This includes closing stores, plants, and warehouses and laying off workers. These workers then have to decrease their own spending, which leads to even less demand and more deflation and causes a deflationary spiral that is hard to break. The only time deflation can work without hurting the rest of the economy is when businesses are able to cut the costs of production in order to lower prices, such as with technology. The cost of technology products has decreased over the years, but it is because the cost of producing that technology has decreased, not because of decreased demand. 

(For related reading, see: Why Is Deflation Bad for the Economy?)