DISINFLATION Syllabus GS Paper 3 – Economy)

Context: Recently, central bank officials noted that a slowdown in the rate of inflation could potentially lead to a reduction in global interest rates, foreseeing a possibility of further global growth deceleration and disinflation in 2024.

Disinflation

• About: Disinflation refers to a temporary deceleration in price inflation, indicating a slight decrease in the inflation rate over a brief timeframe.
• Measuring Disinflation: Unlike inflation and deflation, which signify the direction of prices, disinflation focuses on the rate of change in the inflation rate.
• Economic Stability: A controlled level of disinflation is essential to prevent the economy from overheating, ensuring a moderate and sustainable economic environment.
• Causes of Disinflation: Increases in the supply of money available for use in a nation's economy. 
• Inflation can also occur when the economy 'overheats' because of excess aggregate demand (this is called demand-pull inflation).

Difference between Disinflation and Deflation

• Disinflation and deflation differ, with the former signifying a reduction in the inflation rate, while the latter indicates negative inflation.