EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Deflation vs Disinflation

By Diksha KeniDiksha Keni

Home » Finance » Blog » Economics » Deflation vs Disinflation

Deflation vs Disinflation

Difference between Deflation vs Disinflation

The general price level of goods and services in the economy may show a positive trend, a downward trend or a slowdown in the positive trend. Based on these scenarios, concepts such as inflation, deflation, and disinflation come into the picture. Some people consider deflation vs disinflation as the same, which is untrue. Let us see what these two terms mean.

Deflation: This refers to a situation where the prices of goods and services fall. It is the opposite of inflation. Thus, when inflation is below zero, the scenario is referred to as deflation. For instance, an inflation rate of -3% is known as deflation. Deflation can be measured using Consumer Price Index (CPI), Wholesale Price Index (WPI), Producer Price Indexes (PPI), Retail Price Index (RPI), and so on.

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Disinflation: This refers to a situation where there is a slowdown in the rate of inflation. For instance, a change in the inflation rate from 6% to 3% from one period to another is known as disinflation.

Deflation vs Disinflation (Infographics)

Below is the Top 10 Comparison between Deflation vs Disinflation.Deflation vs Disinflation infographics

Key Differences between Deflation vs Disinflation

We will get more clarity on the subject matter by reading about the differences between deflation vs disinflation in detail:

  • Deflation happens when people don’t want to spend today but want to save for the future. The result of this is a lesser demand for commodities, which leads to a further fall in the price level. Under disinflation, the economy is generally growing and there is stabilization in the general price level. The demand for commodities is rising under disinflation.
  • It intuitively appears that a fall in prices is good as the same amount of money can buy more goods. But, this is not the case. Deflation is a negative sign. If there is deflation, it is a warning that the economy could slip into recession or depression. Consumers’ reluctance to spend may result in a downward spiral of deflation, which may be more harmful in the future as it may result in a slowdown in consumption. Deflation results in layoffs, low income, a fall in salaries, and declining profits. If the economy is growing along with disinflation, then it is a positive sign. It is considered to be good for developing countries. If there is no economic growth along with disinflation, then it may be a warning for the economy. It could indicate that there may be deflation in the economy in the future.
  •  Deflation may result in social unrest as the economic condition of the country deteriorates. Disinflation generally leads to happy people as the rate of growth in prices reduces.
  • Under deflation, the price can fall at a high rate. Under disinflation, the increase in prices are at a lesser rate. Thus, the rise in prices is gradual. Disinflation continues up to the rate of inflation is zero. After this period, there may be deflation where there is a fall in the general price level.
  • Deflation may be caused by a fall in the money supply. Further causes include a fall in investment and government spending in the economy. Deferment of consumer spending can also result in deflation. A tight monetary policy by the central bank where interest rates are kept high can result in disinflation. Sometimes, a slowdown in business activity can also result in disinflation.
  • Deflation is the exact opposite of inflation. Under inflation, there is a rise in prices whereas, under deflation, the prices fall. Under disinflation, there is a reduction in the level of inflation.
  • Under deflation, people save money in the present for the future. This is done as they anticipate a further fall in prices. Under disinflation, consumers spend money normally as per their needs.

Deflation vs Disinflation Comparison table

Let us discuss the topmost comparisons between deflation vs disinflation.

Basis of Comparison between deflation vs disinflation Deflation Disinflation
Definition Under deflation, the general price level falls in the economy. Under disinflation, the rate of inflation reduces over time.
Frequency Deflation occurs very rarely as compared to disinflation. Disinflation is a much more common occurrence than deflation.
Remedial Measures Deflation may lead to recession or depression. Hence, governments usually take remedial measures at the first sign of deflation. An expansionary monetary policy where there is a reduction in interest rates can be used to deal with deflation. Governments may not take any remedial measures when they see disinflation in the economy.
Example During the Great Depression in the 1930s in the USA, there was double-digit deflation. Once the property bubble burst in Japan in 1990, Japan suffered deflation. Almost all countries go through periods of disinflation from time to time.
Stock Markets Stock markets generally perform badly during periods of deflation. Stock markets may not perform badly during periods of disinflation.
Bond Markets Due to central bank policy being favorable during such periods, bonds are likely to perform well. During periods of disinflation, central banks are likely to reduce interest rates. Hence, bonds generally deliver above-average returns in such a scenario.
Impact Deflation is destructive as it is accompanied by rising unemployment and a slowing economy. As long as inflation is positive, disinflation is not considered to be generally negative. People may welcome disinflation if the earlier inflation rate is very high.
Supply Demand Dynamics Under deflation, the supply is more than the demand. Under disinflation, demand and supply are usually similar.
Employment Level The employment level is less than 100% when deflation occurs. The employment level is more than 100% when disinflation occurs.
Economy The economy of the country is poor and weakening under deflation. Under disinflation, the economy is stable and in good shape.

Conclusion

Both deflations vs disinflation are scenarios that may occur in the economy. Good economic policies and monetary and fiscal intervention help in keeping both deflation and disinflation in check. Deflation is considered to be negative for the economy. Hence, it is necessary for governments to nip deflation in the bud at the first sign of it. But, disinflation is generally considered to be positive. In certain cases, disinflation may serve as a warning of an incoming recession or in rare cases, depression.

Popular Course in this category
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Investment Banking Course(117 Courses, 25+ Projects)Mergers & Acquisition Course (with M&A Projects)Financial Modeling Course (3 Courses, 14 Projects)

Recommended Articles

This has been a guide to the top difference between Deflation vs Disinflation. Here we also discuss the Deflation vs Disinflation key differences with infographics and comparison table. You may also have a look at the following articles to learn more –

  1. Margin vs Profit – Top Differences
  2. Average Cost vs Marginal Cost
  3. Turnover vs Profit – Which One is Better?
  4. Difference between Revenue vs Income
  5. Inflation Formula with Excel Template

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

2 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Economics
    • What is Command Economy?
    • Tax Reform
    • Green Field Investment
    • Elastic Demand Formula
    • Tax Sale
    • Gross Income vs Net Income
    • NASDAQ vs NYSE
    • Trade Deficit
    • Tax Shelter
    • Form 10 K
    • International Investment
    • Leading vs Lagging Indicators
    • Nominal GDP vs Real GDP
    • Monetary Policy vs Fiscal Policy
    • Foreign Direct Investment
    • CRR vs SLR
    • Elasticity of Demand Example
    • Economics Example
    • Negative Correlation Example
    • Economies of Scale Example
    • Macroeconomics vs Microeconomics
    • Macroeconomics Problems
    • Perfect Competition vs Monopolistic Competition
    • CPI vs RPI
    • Elastic Demand vs Inelastic Demand
    • Primary Market vs Secondary Market
    • Monopoly vs Monopolistic Competition
    • Supply vs Demand
    • Duty vs Tariff
    • Deflation vs Disinflation
    • Inflation vs Interest Rates
    • Repo Rate vs Reverse Repo Rate
    • Price Elasticity of Demand Formula
    • Oligopoly vs Monopoly
    • Monopoly vs Perfect Competition
    • Cross Price Elasticity of Demand Formula
    • Demand Pull Inflation
    • Variance Analysis
    • Money vs Currency
    • Mean vs Median
    • Nominal vs Real Interest Rates
    • Tax Evasion vs Tax Avoidance
    • Career in Economics
    • Bank Rate vs Repo Rate
  • Accounting fundamentals (485+)
  • Asset Management Tutorial (140+)
  • Banking (43+)
  • Corporate Finance Basics (126+)
  • Credit Research Fundamentals (6+)
  • Finance Formula (372+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (60+)
  • Investment Banking Careers (26+)
  • Trading for dummies (66+)
  • valuation basics (25+)
Finance Blog Courses
  • Investment Banking Course
  • Mergers & Acquisition Course
  • Financial Modeling Course
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2020 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA Login

Forgot Password?

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you
Book Your One Instructor : One Learner Free Class

Let’s Get Started

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) Learn More