Budget 2023 | What is Deflation and Disinflation?

With the annual Budget exercise only a few weeks away, let us take a look at some key terms

The Narendra Modi government is set to present its Union Budget on February 1. With the annual exercise only a few weeks away, let us take a look at some key terms.

Deflation:

Deflation is the phenomenon when the overall price of goods and services goes down to an extent that the inflation rate becomes negative. It can be caused by a decline in the money supply, government spending, consumer spending, and corporate investment.

Deflation is harmful to an economy. It decreases economic growth and generates severe unemployment. The Reserve Bank of India (RBI) manages deflation by infusing a higher money supply to the market.

Disinflation:

Not to be confused with deflation, disinflation is the temporary slowdown in the pace of price inflation. The Federal Reserve uses disinflation to describe a period of slowing inflation rate over the short term. Unlike deflation, this is not harmful to the economy. Inflation and deflation refer to the direction of prices, while disinflation refers to the rate of change in inflation.