We’ve seen investors and many digital participants confused understanding many
terms. One of those is disinflation which is very easy to confuse or incorrectly switch to another economic term named deflation. However, both are completely different terms but sometimes it is difficult to remember without some explanation.
If you are going through the same situation then don’t worry!
In fact, that’s why we are here. But, to understand it clearly, you gotta take a look at the base of the term which is “inflation”.
Inflation refers to hiking prices. As a result of inflation, the prices of goods and services rise and purchasing power of currency fall. To best describe this, let’s assume the inflation rate is at 2 percent, then a chocolate which costs Rs 100 in a given year will cost Rs 102. As you can see, the implicit value of money falls since the chocolate (goods & services) requires more money to purchase.
Now that you’ve got the clear idea about inflation, we can talk about disinflation. Disinflation is simply a slowdown in the rate of hiking prices.
For example, if economists state that the inflation rate for one month was at 3 percent, but declined to 2 percent in the next month, this is a period of disinflation since the rate of inflation slowed.
Now, the deflation which people mostly confused with disinflation. But, the truth is, both are totally different. Deflation is like the opposite of inflation which happens when the inflation rate drops to below 0 percent. When the prices turn negative, most services and goods get cheaper which benefits in short-term but if it keeps going for too long, companies’ profits start to diminish.
In fact, the deflation is the cause of the recession and it affects consumers too.
Disinflation is very common and considered as a happy trend for developing economies like India, which help citizens’, investors’, and businesses’ to escape from a high level of inflation.
Author – Advisorymandi.com
Advisorymandi.com is India’s First Stock Market Advisory Marketplace. It provides a unique platform to investors, traders and SEBI Registered Analysts. These analysts provide their best advisory in equity, currency, commodity and many more specifications of the stock market.