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Explaining the difference between Disinflation and Deflation

Geoff Riley

19th December 2022

Fears of price deflation now seem a distant memory with CPI inflation in the UK economy climbing to 11% during 2022. Students often confuse disinflation with deflation, so we have produced a quick video primer on this and included some charts to show what has been happening to inflation, interest rates and real wages.

What is disinflation?

What is disinflation?

Disinflation refers to a slowdown or a fall in the annual rate of price inflation. Consumer prices are still increasing, but more slowly. This drop in the inflation rate may be temporary in nature.

What might cause a period of disinflation?

  • An economic slowdown / recession which dampens down demand-pull inflationary pressures
  • Slowdown in aggregate demand might have been caused by a central bank raising interest rates to tighten monetary policy.
  • An appreciation of the exchange rate which leads to a fall in the costs / prices of imports – remember the acronym (SPICED): Strong pound, imports cheaper, exports dearer
  • A drop in global prices for key inputs such as oil, gas and copper

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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