4.6.1—Inflation, deflation and disinflation

Inflation is a sustained rise in the general price level; deflation is a sustained fall; disinflation means the inflation rate is falling while prices are still rising.

Use the rate and the price level together. A fall from 8% to 3% inflation is disinflation, not deflation. Deflation can raise the real burden of debt and encourage delayed spending, but its effects depend on expectations and causes.

If an index moves from 100 to 108 and then to 111, inflation has slowed from 8% to about 2.8%; prices have not returned to 100.

A fall in the inflation rate is not a fall in prices. Only a negative inflation rate indicates a general price-level decline.