Difference between deflation and disinflation?

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Deflation

It is decline in goods/services price when rate of inflation falls below zero percentage. It is linked to unemployment and productivity levels of goods/services are low. Deflation acts as economy indicator for deteriorating conditions.

Causes of deflation are as follows −

  • Structural changes (capital markets)
  • Productivity increased
  • When decrease in currency supply

Effects of deflation are −

  • Reduces business revenue
  • Low wages
  • Layoffs

Disinflation

It is nothing but decrease in rate of inflation or price inflation is slowing. It is a point where inflation increases at slower rates. Money supply slows down because of tighter monetary policy is cause of disinflation. Disinflation is not always a negative. It can be positive when inflation is high.

The major differences between deflation and disinflation are as follows −

DeflationDisinflation
Deflation occurs in an economy, where there is a fall in general price level.Disinflation occurs when there is a fall in rate of inflation for a time, but stays positive.
Occurs rarely.Frequently occurs as compared to deflation.
Negative sign.Positive sign.
Mainly causes due to shift in demand and supply curve.Cause due to government deliberate policy.
Opposite to inflation.Opposite to reflation.
Occurs prior to employment.Occurs subsequent to employment.
No limit to price fall.Prices can be brought back to normal.
Reduction in interest rates can be used as remedial measures.No remedial measures are taken by government.
Performance of stock market in this condition is bad.Performance of stock market in these condition may not be that bad.
Bond markets perform well in these conditions.Bond market in these condition may get above average returns.
Impact: Economy slow down, unemployment.Impact: High inflation rate.
Poor country economy.Stable country economy.
raja
Updated on 20-May-2022 06:50:33

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