Understanding Disinflation: Definition, Causes, and Economic Impact

Disinflation is a temporary slowing of the pace of price inflation and is used by the Federal Reserve to describe a slowdown in the inflation rate rather than deflation, which is harmful. Unlike inflation and deflation, disinflation refers to the rate of change, not the price level, and is not usually problematic since prices do not actually fall. Causes include tighter monetary policy and asset sales that drain money, while a contracting business cycle or recession can also trigger disinflation. From 1980 to 2015, the U.S. experienced a long disinflationary period following the Great Inflation of the 1970s, with inflation peaking at 14.8% in 1980 and then easing to 59% growth through the 1980s, 32% in the 1990s, 27% from 2000–2009, and 9% from 2010–2015; stocks averaged 8.65% real returns, and bonds benefited from lower rates.