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Disinflation UPSC NOTE

 What is disinflation?

  • Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. 

  • It is the opposite of Inflation.

  • If the inflation rate is not very high to start with, disinflation can lead to deflation – decreases in the general price level of goods and services.

  • For example if the annual inflation rate one month is 5% and it is 4% the following month, prices disinflated by 1% but are still increasing at a 4% annual rate. 

  • If the current rate is 1% and it is the -2% the following month, prices disinflated by 3% and are decreasing at a 2% annual rate.

Causes of disinflation

  • The causes of disinflation are either a decrease in the growth rate of the money supply, or a business cycle contraction (recession).

  • During a recession, competition among businesses for customers becomes more intense, and so retailers are no longer able to pass on higher prices to their customers. In contrast, deflation occurs when prices are actually dropping.

Characteristics of disinflation

  • If disinflation continues until the inflation rate is zero, the economy enters a deflationary period, with decreasing general prices on all goods and services produced.

  • Disinflation is lower inflation. 

    • Deflation is negative inflation.

  • Prices are still rising during disinflation, but at a lower rate. 

  • The general price level still rises, but, at a slower rate resulting in a continued, but, lower rate of real value destruction in money and other monetary items. 

  • A lowering of inflation is not deflation but disinflation.

  • Disinflation is a positive trend for developing economies like India, as it is a way out of a high-inflation position.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Disinflation UPSC NOTE
Disinflation UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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