Compare cost inflation and deflation.

The major differences between cost inflation and deflation are as follows −

Inflation

• It increases aggregate price level.

• If inflation is caused by demand it is called Demand pull inflation.

• If inflation is caused by supply it is called cost push inflation.

• It is beneficial to economy.

• It reduces purchasing power of money.

• It results in unequal distribution of money.

Deflation

• It decreases in aggregate price level.

• If deflation is caused by reduction in money supply, then it is called money supply deflation.

• If deflation is caused by credit factors, then it is called as credit deflation.

• It is not good for economy.

• It increases purchasing power of money.

• It reduces investments, increase in unemployment.