Deflation - Dis-inflation - Reflation

Deflation - Dis-inflation - Reflation 

Deflation is a general decline in prices for goods and services,  associated with a reduction  in the supply of money and credit in the economy, but prices can also fall due to increased productivity and technological improvements. 

During deflation, the purchasing power of currency rises over time.  

Deflation benefits consumers because they can purchase more goods and services with the same nominal income over time. In particular, deflation can harm borrowers, who can be bound to pay their debts in money that is worth more than the money they borrowed, as well as any financial market participants who invest or speculate on the prospect of rising prices.   

Disinflation is a temporary slowdown in the rate of price inflation, meaning the general price level of goods and services is still rising, but at a slower pace than before.

Inflation and deflation  refer to the direction of prices, disinflation refers to the rate of change in the rate of inflation.   

Examples

1. Inflation

• A loaf of bread costs Rs 2.00 this year. Next year, due to inflation, the same loaf costs Rs 2.10. You need more money to buy the exact same item. 

2. Disinflation

•Last year, a loaf of bread jumped from Rs 2.00 to Rs 2.20 (a 10% inflation rate). This year, it goes from Rs 2.20 to Rs 2.27 (a 3.3% inflation rate). The bread still costs more, but the speed of the price increase has slowed down. 

3. Deflation

• A loaf of bread that cost Rs 2.00 last year now costs Rs 1.80 this year. 

Reflation

Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend. It is a deliberate government or central bank policy (like cutting interest rates, lowering taxes, or printing money) used to lift prices and stimulate growth after a slowdown or deflation. 

After a deep economic slump where prices kept falling, the government cuts interest rates and builds new roads. This puts money in people's pockets, gets them spending again, and gently pushes prices back up to a healthy level. 

Reflation is the correct and standard economic term, while reinflation is generally used in physical contexts (such as filling a balloon or tire with air again)