Inflation, deflation and disinflation are exactly the kind of distinction examiners test with one-mark definitions. All three are covered precisely in the Economics Made Simple Complete Bundle — textbook, practice questions with mark schemes, flashcards and 100 case studies.
Deflation and Disinflation are not the same. Although they all show the behavior of Price level but They are different in their direction and change in the Rate of Price Level.
Deflation
means an opposite to Inflation Or Falling Price (just like we have rising prices in Inflation). A deflation does not have a positive impact all the time. Off course, every person would want to have falling prices but not below “0”. Not every person is willing to sell below the level of the costs it has incurred.
Disinflation
Is considered to be a common condition. It is related to the Rate of change of Prices. It has no concern with the direction of Price as in the case of Inflation and Deflation. Disinflation means that Inflation rate is increasing but at a low rate.
For example: Deflation means that inflation rate of 1% becomes less or –1%. But a disinflation is the change in the inflation rate from 4% to one year to 2% in the coming year.
Important notes about Disinflation and Deflation
- Disinflation is representing a period when inflation rate is positive but decreasing over time.
- To make it even more simple, Disinflation is a slow in the Inflation Rate with time.
- Disinflation leads to Deflation.
- Disinflation is continued until the rate of inflation is ZERO.
- After that , Deflation period starts-with decrease in the general price level.
- Deflation is a Negative Inflation Rate but Disinflation is not.
Upnext: The Impact of Inflation over an Economy