What are the Differences Between Inflation and Deflation

What Is Inflation?

What Is Deflation?

What are the Key Differences Between Inflation and Deflation

The table below illustrates the primary differences between inflation and deflation:

Parameters

Inflation

Deflation

Definition

It is defined as a scenario where the price of goods and services increases in an economy.

It is defined as a scenario swherethe price of goods and services decreases in an economy.

Effect on demand

The demand for goods and services increases during inflation.

The demand for goods and services decreases during inflation.

Effect on national income

National income does not get affected due to inflation.

National income tends to drop due to deflation.

Consequences

Inflation causes an unequal distribution of income

Deflation causes a significant rise in the unemployment level

Benefits

Inflation to a moderate level is good for an economy

The decrease in prices of goods and services will help people to save more.

Effect on the purchasing power of money

Inflation reduces the purchasing power of money

Deflation increases purchasing power of money

That is all about the differences between inflation and deflation. The central government adopts several measures in order to bring inflation under control. These measures include fiscal measures, monetary measures, controlling investment, and more. Further, Central Bank also takes several measures to reduce deflation in an economy. To sum it up, inflation to a certain level is good. However, tackling deflation becomes hard as it can lead to depression, unemployment, etc., in a country.

FAQs About Inflation and Deflation

Why is inflation better than deflation? up-arrow

Inflation helps improve a country’s economy by increasing production, employment and investment. On the other hand, deflation is dreadful as it can completely ruin a country’s economy.

Does deflation benefit anyone? up-arrow

Deflation can be beneficial to consumers in the short term due to a reduction in goods' prices. This happens because the purchasing power of customers increases and helps them save more.

Is inflation good for India’s economy? up-arrow

Inflation is considered to be beneficial as long as it boosts consumer demand and consumption and improves the country's economy.