Disinflation

Disinflation is different from deflation. During disinflation, the general price level continues to rise, just at a decreasing rate. During deflation, prices actually fall.

For example, if inflation falls from 8% one year to 5% the next and 3% the year after, the economy is experiencing disinflation. Prices are still higher each year, but the pace of increase is slowing.

Disinflation often occurs after central banks raise interest rates to bring high inflation under control, or when temporary factors that pushed inflation up, such as an energy price spike or supply disruptions, begin to fade.

Disinflation is generally welcome when inflation has been uncomfortably high, as it means the cost of living is rising less quickly. However, if it happens because the economy is weakening sharply, it may come with rising unemployment. Central banks aim to achieve disinflation gradually, bringing inflation back to their target without causing a recession, a result often described as a soft landing.