We often here the term inflation. But, people rarely talk about deflation. In fact, people seldom talk of disinflation, which is not really similar to deflation.
Now, most individuals know what inflation is. It is a general rise in the price levels over a period of time.
So, what is the difference between deflation and disinflation
Take the case of LCD and HD Televisions. When they were launched they were really very expensive. Today, you find that they have witnessed a remarkable drop in their prices.
Similar, is the case with LED Bulbs. When they were launched it was horribly expensive, today they have seen a dramatic drop of almost 50 per cent in prices. This is called deflation.
This could take place for a number of reasons. For example, when the input costs decreases, the final price of the product could decrease, leading to a deflationary trend.
There could be various other reasons, including cut throat competition, which forces producers to drop the price of a product.
In times of recession this phenomenon could occur.
Disinflation is the rate of drop in inflation over a period of time. This makes it very different to deflation. Let us say that Consumer price Inflation in India in Jan 2016, was 6 per cent. If it has dropped to 5.85 per cent in Feb and 5.5 per cent in March we could safely say that there is a trend of disinflation in the economy.
In fact, India has been witnessing a disinflationary trend for the last many months now, where the inflation rate has been constantly on the decline.
There are various measures to use to look at inflation, including the CPI, WPI. We can also the gross domestic product deflator, which measure the price of inflation. Learn the difference between WPI Inflation and CPI inflation here