Legal Definitions - disinflation

Disinflation refers to a period or process where the general increase in prices for goods and services is slowing down. It means that inflation is still occurring—prices are still rising—but at a less rapid pace than before. It is distinct from deflation, where prices actually decrease.

Here are some examples to illustrate disinflation:

• National Economic Trend: Imagine a country where the annual inflation rate, as measured by the Consumer Price Index, was consistently at 8% for several quarters. Over the next year, due to various economic factors or policy interventions, this rate gradually drops to 6%, then to 4%, and eventually to 3%.

  This situation demonstrates disinflation because prices are still increasing across the economy (e.g., a basket of goods that cost $100 last year now costs $103, up from $104, up from $106, up from $108), but the speed at which they are rising has significantly decreased. The economy is experiencing a slowdown in the rate of price increases.

• Specific Industry Costs: Consider the automotive industry, which experienced a 12% increase in the cost of raw materials like steel and aluminum last year. This year, while material costs are still rising, they are only increasing by 4%.

  This scenario illustrates disinflation within a specific sector. Manufacturers are still paying more for their materials, but the *rate* at which those costs are escalating has moderated considerably (from 12% to 4%).

• Household Goods: A family observes that the price of their weekly grocery basket, which had been increasing by an average of 10% year-over-year for the past two years, is now only increasing by 3% annually.

  This is an example of disinflation from a consumer perspective. While the family is still paying more for their groceries than they did the previous year, the *pace* of those price increases has slowed down substantially, making their budget stretch further than it would have if prices continued to climb at the previous 10% rate.