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In this article, we will talk about disinflation and deflation which are not known in daily life but should not be missed in the field of economy . In order to understand the concepts of disinflation and deflation, the relationship of which can be understood from the word structures , you must have enough information about inflation . Let’s look at disinflation and deflation under two separate headings.
WHAT IS DISINFLATION?
Disinflation refers to the decrease in inflation and the decrease in price increases. Disinflation is not the opposite of inflation. With the necessary moves, the inflation process, which is pulled from high to low levels, shows us that disinflation is taking place. For example, let us assume that inflation is 30% at the beginning of the process. After a certain period of time, this inflation rate, which has fallen to 12%, indicates disinflation. There is a very important point to be considered while learning disinflation. Take our example again. Initial inflation was 30% and end inflation was 12%. As the numbers show, price increases continued in this process. Prices have not dropped. It is necessary to eliminate the possibility of misunderstanding here. Prices have increased during this period but the rate of increase has decreased.Disinflation leads to some beneficial situations for the country. Stability in prices increases as price increases decrease. Thus, capital investment costs are reduced with lower interest rates. The most critical result of disinflation is the formation of a more stable economic environment and the decline in inflation expectations.
WHAT IS DEFLATION?
Deflation is generally the decrease in product prices or the increase in purchasing power. In other words, deflation is a negative rate of inflation. It is wrong to think that deflation will be directly beneficial against the negative effects of inflation. Let us explain the negative effect of deflation as follows. In a deflationary country, prices will decrease over time. The consumer who sees this situation will expect the product he wants to buy to become cheaper as a requirement of consumer behavior. Massive postponement of mass consumption causes serious damages to product manufacturing and even stops it, and the problem of unemployment arises. This unemployment problem again reduces product consumption and thus deflation increases further. Producers can respond to this by delaying their investments.Central banks intervene in the troubled situation caused by deflation by reducing interest rates. In inflation, interest rates are increased to encourage investment and in deflation, interest rates are reduced to encourage consumption. Another view put forward by economists is the printing of extra money and the monetaryization of debt. Thus, inflation will be created and deflation dilemma will be eliminated.