Disinflation

Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation. Disinflation occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising.

If the inflation rate is not very high to start with, disinflation can lead to deflation – decreases in the general price level of goods and services. For example, if the annual inflation rate for the month of January is 5% and it is 4% in the month of February, the prices disinflated by 1% but are still increasing at a 4% annual rate. Again if the current rate is 1% and it is -2% for the following month, prices disinflated by 3% i.e. [1%-(-2)%] and are decreasing at a 2% annual rate.