Difference between Inflation, Deflation and Disinflation
Inflation refers to rise in general price level of goods and services, deflation is fall in general price level of goods and services. Deflation is inflation in negative zone, i.e. a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Disinflation is on the other hand is a slow-down in the inflation rate (i.e. when inflation declines to lower levels).
Difference between Inflation and Deflation
- In inflation, too much money chases too few goods because inflation reduces the real value of money over time. Conversely, deflation increases the real value of money and this allows one to buy more goods with the same amount of money.
- Inflation results in distribution of income in favour of rich. However, deflation is much more problematic. Inflation does not lead to lowering of national income which deflation does. It causes wide scale unemployment; brings down profits; sets in pacifism and slowdown in the economy.
- Inflation is easy to control using monetary policy tools; but deflation is quite difficult to control using the same means. In fact, mild inflation is good for economy because it leads to economic growth. Falling prices due to deflation make capital less efficient and reduces production, causes unemployment.