How does disinflation differ from deflation, and why is disinflation generally preferred by economists?
Answer (1)
Disinflation and deflation both involve a decrease in the rate at which prices rise, but they are not the same thing. Understanding the difference is important, especially for students learning how prices affect the economy.Disinflation is when the rate of inflation slows down—for example, if inflation goes from 5% to 3%, that is disinflation. Prices are still rising, but at a slower pace. It means the economy is cooling down gently and is considered a good sign, especially if inflation was too high before.Deflation, on the other hand, is when prices actually drop over time—so instead of just slowing down, they go into reverse. For example, if a kilo of rice was ₱50 last year and ₱48 this year, that’s deflation. It may seem like a good thing at first (who doesn't want cheaper goods?), but deflation is dangerous for the economy in the long run.Why do economists prefer disinflation? Because disinflation allows an economy to stabilize prices without causing the problems that come with falling prices. When deflation happens, people delay spending because they believe prices will fall more in the future. Imagine if you plan to buy a phone but hear that it will be cheaper next month. You’ll wait. If everyone waits, businesses stop earning money, they cut back on workers, and unemployment rises. This happened in Japan during the 1990s, which led to what's known as the "Lost Decade."In the Philippine context, disinflation happened between late 2023 and early 2024. After inflation peaked due to food supply issues and global fuel prices, the Bangko Sentral ng Pilipinas (BSP) raised interest rates. This helped bring inflation down without collapsing prices—an example of successful disinflation. The economy kept growing, and jobs were preserved.In short, disinflation slows price growth gradually, which helps stabilize the economy, while deflation stops growth and can lead to recession. That’s why disinflation is seen as the safer and smarter outcome.
