What Is The Difference Between Inflation, Deflation and Disinflation in India?

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India hardly ever witnesses deflation, while there is still some disinflation these days, while inflation is a perennial problem in India.

What Is Inflation?

Inflation is a tendency for prices to increase and in India it is generally measured in WPI and CPI inflation. While WPI Inflation is also called Wholesale Price Index Inflation, CPI is called Consumer Price Index Inflation.

The various components of the WPI include goods that are in bulk. There used to be a total of 677 items that formed a part of the index, but, we still cannot be certain if that number has gone a change in recent months.

 What Is The Difference Between Inflation, Deflation and Disinflation in India?

Components that make up the CPI Inflation include food articles, electricity, minerals etc. On the other hand the WPI Inflation is made-up of items that are dealt with on a wholesale basis.

In any case inflation is the measure of increase in prices over a period of time.

What Is Deflation?

Inflation is exactly the opposite of deflation. For example, when there is a complete depression in prices, it is termed as deflation.

Let's give an example. Say inflation was one per cent in the month of December, -0.5 per cent in Jan and -0.6 per cent in Feb.

If the tendency of depressed prices continues, it shows that there is deflation in the economy. If the trend continues it is a clear case of deflation.

What is Disinflation?

Disinflation is the tendency of prices to drop, but still remains positive. For example, in India if the CPI Inflation was 8 per cent in December and it has dropped to 7 per cent in Jan and further to 6.5 per cent in Feb, we can safely say that there is disinflation in the economy.

So What Is The Difference Between Inflation, Disinflation And Deflation?

As explained in the definitions, inflation is a tendency for prices to rise continuously, disinflation is characterised by a drop in prices, though they do not tend to be negative.

On the other hand in deflation there is no pricing power and prices keep dropping.

When there is deflation governments across the world tend to print more money and quantitative easing takes place. Classical examples are what is happening in Europe and Japan.

In countries like India there is inflation which keeps happening as demand is robust. This leads to the central bank hiking interest rates too often. It shows a case of robust demand

Nothing can be considered as good or bad. Too much of inflation is not good for the economy and a prolonged period of disinflation cal also lead to depression in prices.

GoodReturns.in

Read more about: inflation, disinflation
Story first published: Thursday, March 26, 2015, 9:23 [IST]
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