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Difference between deflation and disinflation?
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 −
| Deflation | Disinflation |
|---|---|
| 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. |
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