Difference between Deflation and Disinflation

Many individuals believe that deflation and disinflation are same and they can use interchangeably. As deflation alludes to a state of depression and across the board unemployment brought on by inadequacy of effective demand, disinflation is a procedure of repeal inflation without making unemployment or lessening output. In this article we are going to explain the contrasts between these two terms.

Deflation

Deflation is depicted as a period when the price level of economic output decreases in the economy because of the reduction in the money supply, investments, consumer demand and government spending. It happens when the inflation rate is under zero percent or negative. It leads to the ascent in the real money value. In such a circumstance, the purchasing power of the general population increases and now they can purchase more products with the same amount of cash. In deflation, steep decrease in the price level is there, which shows an unhealthy state of the economy. It can bring about high unemployment, decrease in the wages rates, decline in benefits, low demand and low income.

Disinflation

Disinflation is a condition when the inflation rate is reducing after some time, yet positive and proceeds till the rate is equivalent to zero. It is the decrease in the rate of expansion in the general price levels in economy that is the prices of items or services are not increasing, as they usually increase before. The price level increases in disinflation yet the inflation rate reduces over the timeframe. Deflation is not an indication of a moderating economy, but rather it is an intentional move made by the legislature keeping in mind the end goal to cut down the prices to typical normal level. It is useful for developing economy.

Deflation Vs Disinflation

  • Meaning:

Deflation is a condition when there is a decrease in the price level, in the entire economy.

Disinflation is a condition when the inflation rate is going to decrease after some time yet still stays positive.

  • Sign:

Deflation is a condition when rate of inflation becomes negative, so the sign of deflation is negative.

Disinflation is a condition when inflation rate becomes positive yet decreasing with passage of time, so the sign of disinflation is positive.

  • Contrast:

Deflation is the opposite of inflation.

Disinflation is contrast of reflation.

  • Reason:

The fundamental reason of deflation is actually the shift in supply and demand of economic output.

On the other hand, disinflation is actually planned policy of government.

  • Happens:

When it comes to level of employment, deflation happens earlier than the full level of employment.

When it comes to level of employment, disinflation happens after approaching the full level of employment.

  • Price level:

In the situation of deflation, the price level decreases even lower than normal level, as there is no restriction of decreasing in price level.

In the situation of disinflation, there is restriction and it helps the price level to come to normal level.

  • Problem:

Due to deflation, a major issue of mass unemployment and decrease in output in economy is there.

Due to disinflation, no such issues are there; it rather protects the economy from harmful impacts of inflation.

Conclusion

From above article we come to know that deflation is a condition when there is a decrease in the price level, in the entire economy and its sign is negative while disinflation is a condition when the inflation rate is going to decrease after some time yet still stays positive. Deflation is the opposite of inflation whereas disinflation is contrast of reflation. The fundamental reason of deflation is actually the shift in supply and demand of economic output as on the other hand, disinflation is actually planned policy of government. Deflation happens earlier than the full level of employment while disinflation happens after approaching the full level of employment. In deflation, the price level decreases even lower than normal level and no restriction of decreasing in price level is there while in disinflation, there is restriction and it helps the price level to come to normal level. Deflation causes many problems whereas due to disinflation no such issues are there.