What is the difference between inflationary and deflationary

By Madhuri Thakur. Inflation refers to the significant increase in the general prices of real goods in the economy. Economists use various price indexes to study this phenomenon. Some of the common indexes that are used to understand the change in prices are the Consumer price index, Wholesale price index, and Personal consumption expenditure price index. Moderate growth in the Inflation rate is healthy for the economy, however, if not monitored properly, it can cause serious damage to the economy.

Deflation is a phenomenon where the aggregate price level decreases significantly, which often leads to a negative inflation rate. There have been instances in the world economy, where certain countries at times witnessed an extremely fast increase in their inflation rates.

Currently, Venezuela is experiencing such a high inflation rate. The fall in the Inflation rate is not always considered a Deflation. Disinflation is different from Deflation because the inflation rate during disinflation is still positive even after falling dramatically.

Both Inflations vs Deflation are popular choices in the market; let us discuss some of the major differences:. As you can see there are many Comparisons between Inflation vs Deflation. If you are interested in this product and are not yet a New Gen client, become a customer now. Differences between inflation and deflation 2 min. Both terms can be confusing on occasions, so here we provide a brief and simple overview to give you a basic idea of the two concepts.

Inflation Inflation is the increase in the price of goods and services. This increase has two main characteristics: It is sustained, which means that it is not seasonal, the tendency will be for it to remain over time. It is widespread, affecting most of the sectors that make up the economy. Below we look at the most significant: Demand-pull inflation: Occurs when the demand for goods and services rises and producers cannot meet this increase Built-in inflation: occurs when people anticipate an increase in future prices and immediately build it into their expectations to try and reduce the future effect of this price increase Cost-push inflation: occurs when the price of raw materials becomes more expensive, in this case, the producer will need to increase prices to maintain their profit level, which will lead to an increase in prices Monetary inflation: occurs when central banks increase the level of money supply above the increase in the supply of goods Now, after reviewing the basic concepts of inflation, we consider, what are the effects of an excessively inflationary environment?

The main consequences would be: Loss of purchasing power: with goods and services more expensive, the consumer can buy fewer of them since more and more money is needed to buy the same number of products A brake on business productivity Uncertainty about the future Inefficient allocation of resources Deflation Also called negative inflation.

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