What is disinflation
Disinflation is a slowdown in the rate of inflation. Prices are still rising, but more slowly than before.
Inflation is the rate at which the general price level rises, usually measured by a consumer price index (CPI) compared with the same month a year earlier. When that rate falls but stays above zero, economists call it disinflation.
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A worked example (hypothetical)
Imagine a basket of everyday goods in an imaginary country:
| Period | What CPI inflation shows | What happens to prices |
|---|---|---|
| Earlier month | High inflation | Prices rise quickly |
| Later month | Lower inflation, still positive | Prices still rise, but more slowly |
In the later month the basket still costs more than it did a year before. It is not cheaper. Only the speed of the price rise has dropped. That drop in speed is disinflation.
Disinflation vs deflation
These terms are often confused:
- Disinflation: inflation falls but stays positive. The price level keeps rising, more slowly.
- Deflation: inflation turns negative. The price level itself falls. See Deflation.
- Reflation: the rate of inflation rises again after a slowdown, often after policy support.
A quick test is to check whether the price level is falling or only rising more slowly. If prices are only rising more slowly, the economy is in disinflation, not deflation.
Formal definition and edge cases
Formally, disinflation is a decline in the rate of change of the price level over time. In terms of the price index, its first derivative stays positive while the second derivative is negative.
Points experienced readers watch:
- Headline vs core. Headline CPI can slow because food or energy prices fall, while core inflation (which excludes them) stays sticky. Analysts treat this kind of disinflation with more caution.
- Base effects. A large price jump a year ago can make this year's annual rate fall even if monthly price rises have not slowed.
- Measure choice. CPI, a producer price index and a GDP deflator can show disinflation at different times.
- Policy-led disinflation. Central banks often try to bring it about by keeping interest rates high or raising them. Rate moves are quoted in basis points.
Where you see the term
- Central bank statements. The State Bank of Pakistan explains its rate decisions in monetary policy statements and often discusses the inflation path. The latest decision on record here: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC).
- Data releases and economic calendars. CPI releases appear on calendars inside trading platforms and news feeds. Commentators describe a slowing figure as disinflation.
- Market news. Reports link disinflation to expectations for interest rates, bond yields and currency moves. This is part of fundamental analysis.
Price data can move currency pairs, gold and indices sharply around a release. Leveraged CFD and forex trading can lose money fast, especially in volatile moments. See Risk management.
Related terms
- Deflation
- Business cycle
- Currency appreciation and currency depreciation
- Bond duration
- Austerity and fiscal deficit
- Trading glossary
Frequent questions
What is disinflation in simple words?
Prices are still going up, but more slowly than before.
Is disinflation the same as falling prices?
No. Falling prices are deflation. During disinflation the price level still rises.
Is disinflation good or bad?
It depends on the cause. A slowdown from high inflation toward a central bank's target is usually what policymakers aim for. A slowdown caused by weak demand can signal a weakening economy.
Why do traders follow disinflation?
Inflation data shapes expectations about interest rates, which can affect currencies, bonds, gold and stock indices. This page does not give any view on which way markets will move.