P15 Reflation vs Disinflation vs Deflation vs Inflation
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BASKET BASKET
PRODUCER WHOLESALER RETAILER CONSUMER
Basket of goods traded Basket of goods and
between wholesaler and services consumed by
Retailer. households.
Movement in the level Movement in the level
of Prices is measured of Prices is measured
by by
WPI CPI
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Price Index
Average Price Level
WPI / CPI
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P15 Reflation vs Disinflation vs Deflation vs Inflation
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Average Price Level
WPI / CPI
There is a decline in the
rate of InflaPon
al
ON
er d TION
n DISINFLA
I
g e s an n
AT
FL
i n od a
e of go hout
IN
s DE F
a LAT
Price Index
c r e evel roug ION
I ce l
n th N
r i es T IO Dec
p vic y FL A re
ser nom IN price a s e i n
eco servi level of g g e n e r a l
c o
econ es throu ods and
omy ghou
t an
Year
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Average Price Level
WPI / CPI
IO N
FLAT
IN
O N
F LATI
DISINFLATION N IN
TIO
FLA
IN
IO N
N NFLAT DEFLATION
IO I
NF LAT
I
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P15 Reflation vs Disinflation vs Deflation vs Inflation
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DEFLATION If prices are falling,
consumers may delay
making purchases in
the hope of geRng a
beSer deal in the future
Prices of goods and services
DEMAND DECREASES PROFITS DECREASE
are falling.
INCREASED NPAs INCREASED
UNEMPLOYMENT RATE
REFLATION
In such a situaBon, Government intervenes and tries to increase the general price level of goods and
services in an economy by going for higher public expenditures, tax cuts and interest rate cuts.
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