Inflation, Deflation, Disinflation – What’s the Difference?
Increasingly in the media, there are discussions relating to deflation: are we experiencing deflation, and is deflation worse than inflation? Occasionally, discussions of the economy refer to disinflation. This will be the first in a series of posts exploring price changes and their implications for investing.
Inflation: our old familiar friend
Inflation is a pretty familiar phenomenon for most people; we’re used to seeing prices go up generally over time. If you’re old enough, you may even remember the 1970’s, when prices spiraled dramatically upward and President Gerald Ford encouraged everyone to respond by wearing “Whip Inflation Now” lapel buttons. To no one’s surprise, this wasn’t enough to end inflation.
Inflation is a pretty familiar phenomenon for most people; we’re used to seeing prices go up generally over time. If you’re old enough, you may even remember the 1970’s, when prices spiraled dramatically upward and President Gerald Ford encouraged everyone to respond by wearing “Whip Inflation Now” lapel buttons. To no one’s surprise, this wasn’t enough to end inflation.
Disinflation: kinder, gentler inflation
Disinflation is a convenient way of saying that the inflation rate is decelerating: prices are still going up over time, but they’re not increasing as fast as they were in some previous time period. At the end of the 1970’s we experienced disinflation as the annual inflation rate declined from a nasty peak around 15%. In the latter half of last year, the CPI inflation measures began signaling a decline in inflation, so we’ve experienced a less extreme period of disinflation more recently.
Disinflation is a convenient way of saying that the inflation rate is decelerating: prices are still going up over time, but they’re not increasing as fast as they were in some previous time period. At the end of the 1970’s we experienced disinflation as the annual inflation rate declined from a nasty peak around 15%. In the latter half of last year, the CPI inflation measures began signaling a decline in inflation, so we’ve experienced a less extreme period of disinflation more recently.
