Deflation vs. Disinflation vs Inflation
Falling prices versus a slowing rate of price increases. A general rise in prices that erodes purchasing power.
What is the difference between Deflation vs. Disinflation and Inflation?
Inflation = prices rising. Disinflation = still rising, but slower. Deflation = prices actually falling.
| Deflation vs. Disinflation | Inflation | |
|---|---|---|
| In one line | Falling prices versus a slowing rate of price increases. | A general rise in prices that erodes purchasing power. |
| Example | Inflation falling from 6% to 3% is disinflation. Prices falling 1% a year is deflation. | At 3% inflation, $100,000 of spending power today requires about $181,000 in 20 years. |
| Unit | Economics & Financial Reporting | Macro & Markets |
| Series 65 | Section 1: Economics & Business | Section 1: Economics & Business |
What is Deflation vs. Disinflation?
Deflation is a sustained decline in the general price level. It raises the real burden of debt and can deepen a recession as consumers delay purchases. Disinflation is different: prices are still rising, just more slowly. Deflation favors high-quality bonds and cash, whose fixed payments buy more.
What is Inflation?
Measured most commonly by the Consumer Price Index. It is the reason nominal returns overstate real gains and the reason long-horizon portfolios need growth assets. Central banks in developed economies typically target around 2%.