Disinflation

What Is Disinflation?

Disinflation is a slowdown in the rate of inflation - prices are still rising, but at a slower pace than before. It is easy to confuse with deflation, but the two are fundamentally different: disinflation means positive inflation that is cooling, while deflation means the price level is actually falling. For example, if annual inflation drops from 6% to 3%, that is disinflation; prices are still going up, just less quickly. Disinflation is often exactly what a central bank is aiming for after a bout of high inflation, since the goal is usually to bring inflation back down toward target, not to force prices to fall outright.

Why It Matters

Disinflation is typically the Fed's explicit objective when inflation has run too hot. After the 2021-2022 surge, when headline CPI peaked near 9% year-over-year, the Fed's tightening was designed to produce disinflation - a return toward the 2% target - and inflation had cooled back close to that goal by around 2024. The ideal outcome is often described as a "soft landing," where inflation falls without the economy tumbling into recession. Distinguishing disinflation from deflation matters for interpreting the news correctly: reports of "falling inflation" almost always mean the rate of price increases is easing, not that the cost of living is actually declining.