Disinflation

Definition of disinflation. This is a fall in the inflation rate. It means that the general price level is increasing at a slower rate.

If the inflation rate is already very low, then disinflation could lead to deflation. Deflation is where there is actually a fall in the price level.

For example in the period 1977 -78, we had a period of disinflation, though prices were still rising.

Since the peak in oil prices in early 2008, the UK inflation rate has continued to fall. CPI inflation has now fallen to 1.1%, from a peak of over 5% in 2008.

The worry is that if this disinflation continues, we could see deflation – a negative inflation rate soon.

However, the Bank of England’s recent decision to halt the policy of quantitative easing, suggests they feel the threat of deflation is not too strong and they see signs of economic recovery.