Disinflation
Quick Definition
A decrease in the rate of inflation — prices still rise but at a slower pace than before.
Key Takeaways
- Prices still rise, but at a slower rate — NOT the same as deflation
- Often the goal of central bank tightening cycles
- A sign of successful monetary policy when inflation has been too high
- Can signal weakening demand if it occurs unexpectedly
What Is Disinflation?
Disinflation refers to a slowdown in the rate at which prices increase, distinct from deflation where prices actually fall. During disinflation, the inflation rate declines (for example, from 6% to 3%), but the overall price level continues to rise. This is generally considered a positive development when inflation has been running above a central bank's target. Central banks often engineer disinflation through tighter monetary policy, raising interest rates to cool demand. Successful disinflation achieves price stability without triggering a recession — a "soft landing." However, disinflation can also signal weakening demand if it occurs unexpectedly.
Disinflation Example
- 1U.S. inflation falling from 9.1% in June 2022 to 3.0% by mid-2023 was a period of disinflation, not deflation.
- 2The Fed's 2022-2023 rate hike cycle aimed to engineer disinflation back toward the 2% target.
- 3Disinflation in food prices brought relief to consumers even though prices remained higher than pre-pandemic levels.
Related Terms
Inflation Target
A publicly announced goal for the rate of inflation that a central bank aims to achieve, typically around 2% in advanced economies.
Deflation
A sustained decrease in the general price level of goods and services, resulting in increasing purchasing power of money.
Core Inflation
A measure of inflation that excludes volatile food and energy prices to reveal underlying, persistent price trends in the economy.
Monetary Policy
Actions by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives like stable prices and full employment.
Soft Landing
An economic scenario where a central bank successfully slows growth enough to reduce inflation without triggering a recession.
GDP (Gross Domestic Product)
The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
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