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Deflation vs. Disinflation
What’s the difference between deflation and disinflation?
Deflation
Deflation is the opposite of inflation.
Inflation: the sustained increase in the general price level of goods and services over time.
Deflation: the sustained decrease in the general price level of goods and services over time.
(Remember, it’s the general price level that matters—the prices of many goods and services—not individual prices.)
Just as inflation imposes economic costs—think the lower purchasing power of your money when inflation is high—deflation can also exact a toll.
If people think prices will go down in the future, they may limit spending now in the hope of getting a better deal in the future. When people buy less, businesses might pay lower wages or lay off workers.
These actions could trigger a “deflationary spiral” in which reluctance to spend sets off a cycle of lower economic activity and further declines in prices.
Disinflation
Disinflation is the slowdown of the inflation rate. For example, if the inflation rate drops from 6 percent to 4 percent, that’s disinflation. The overall price level is still rising, but at a slower rate than before.
Think of it as runners slowing their pace: They’re still moving forward, but at a reduced speed.
If inflation is running above a central bank’s goal, policymakers may try to generate disinflation by increasing interest rates in order to bring inflation back down.
If the economy moves from a state of inflation to a state of deflation, there was a period of disinflation in the middle.
Related resources
Inflation Explained: Your Guide to Inflation Basics
Here is your guide to understanding inflation. The Cleveland Fed’s Center for Inflation Research provides definitions and explanations of inflation essentials for you to explore.
Center for Inflation Research
The Center for Inflation Research helps policymakers, researchers, industry professionals, and the informed public better understand inflation. Explore commentary, research, and analysis on inflationary trends, and find out about upcoming inflation-related events.
About Us
The Federal Reserve Bank of Cleveland (commonly known as the Cleveland Fed) is part of the Federal Reserve System, the central bank of the United States.