What is disinflation? What is its economic significance?

Disinflation is a situation of decrease in the rate of inflation over successive time period. It is simply slowing of inflation. Here, the inflation rates for successive periods are taken and we find that inflation rate decreases steadily over these different time periods.

For example, consider the CPI inflation rate in India for June, July, August, September and October. If the inflation rate is, 8.2%, 7.5%, 6.4%, 6.1% and 5.9% respectively, we can observe that the rate of inflation is decreasing. This is the situation of disinflation. Disinflation can be measured over different time periods and not during one time period.

What disinflation shows about the economy?

Disinflation is quite a pleasant one especially for a developing economy. High level of inflation is a nuisance or price instability for many developing economies. For them, price level management is actually inflation management.

Hence for developing economies like India, disinflation is a happy trend as it is an escaping situation from high level of nflation.

Difference between disinflation and deflation

Disinflation and deflation are different. Deflation is the decline of price level. On the other, disinflation is the decrease of inflation. Actually price level increases under disinflation, but the rate of that increase, decreases. Under deflation, prices are coming down but under disinflation, inflation is coming down.