Deflation is a period where there is a temporary slowing pace of price inflation. Usually, people use this term to describe the situation when the inflation rate has reduced marginally in the short term.
You should not get confused between disinflation and deflation. During deflation, there is a threat to the country’s economy.
Defining Disinflation
The term is commonly used to describe the period of slowing inflation. It is different from inflation and deflation. Those two refer to the direction of prices. But, disinflation, refers to the changes in the inflation rate.
Many people usually confused it with deflation, analysts do not consider it problematic because it does not indicate the price drop. Besides, it also does not signal the onset of a slowing economy.
There is a deflation if we find a negative growth rate, such as -1, meanwhile, disinflation happens if there is a change in the inflation rate, like 4% one year to 3% the next. It is the opposite of reflation which happens if the government gives a stimulant to the economy by increasing the money supply.
A sufficient healthy amount of disinflation is necessary for the economy. That is because, it shows economic contraction, as well as, prevents the overheating within the economy.
Therefore, in many instances, disinflation is not uncommon, some people ever consider it normal to happen during a healthy economy period. It benefits many people, such as those who like to save their earnings.
The Causes
There are several main factors that cause the economy to face disinflation. There can be a disinflation if the central bank starts to impose a tighter economy policy and they start to sell their securities. That will decrease the money supply and trigger it.
Similar to that, a recession or a contraction in the business can also trigger it. For instance, companies can choose not to increase their products’ prices to achieve a greater market share. That way, there may be a disinflation.
