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Disinflation

A slowdown in the rate of inflation; prices are still rising, just less quickly, which is the normal objective of a tightening cycle.

Disinflation is not deflation. Going from 6% to 3% is disinflation and the price level is 3% higher than a year ago. The distinction matters because the public often experiences disinflation as a failure of policy, since the cumulative level increase never reverses.

Immaculate disinflation describes inflation falling without a rise in unemployment, which the standard phillips-curve says should be hard. It becomes plausible when the original inflation came from supply disruption rather than from excess demand, since the supply side can heal on its own.

Example: year-over-year inflation falls from 5.4% to 3.1%, but the cumulative price level over two years is 1.054 x 1.031 = 8.7% higher. Inflation is down and nothing is cheaper.

Related: deflation, stagflation, phillips-curve, core-cpi, base-effects

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