Disinflation refers to a slowdown in the rate of inflation. It means that prices are still rising, but at a slower pace than before. Disinflation is different from inflation and deflation. While inflation indicates a general increase in prices and deflation refers to a general decline in prices, disinflation simply describes a reduction in the speed at which prices are increasing.

Disinflation is commonly measured using indicators such as the Consumer Price Index or the Producer Price Index. For example, if annual inflation drops from 8% to 4%, the economy is experiencing disinflation. Prices are still going up, but more gradually.

Central banks, such as the Federal Reserve, often aim for controlled disinflation when inflation becomes too high. They may raise interest rates or tighten monetary policy to reduce excessive price pressures without pushing the economy into deflation.

Disinflation can be beneficial because it stabilises purchasing power and improves economic confidence. However, if inflation slows too quickly, it may signal weakening demand or slowing economic growth. Policymakers must carefully balance measures to ensure that disinflation supports sustainable growth without triggering recession or deflationary risks.