Difference Between Inflation and Deflation

Inflation and deflation are two commonly used terms in Macroeconomics. These two phenomena are experienced by almost every country in the world. It can be said that inflation and deflation are two sides of the same coin.

Inflation is referred to as the situation when the price level of goods and services rise, which leads to decrease in the purchasing power in the economy or in other words decreases the buying power of the money.

Inflation is characterised by two conditions, (1) there is always a steady or sustained rise in the prices of goods and services, which is not seasonal and has a tendency of continuing for a long time (2) the impact is felt across most of the sectors of the economy.

Deflation is the exact opposite of inflation. In this condition, the price level of goods and services decrease exponentially which results in an increase of the buying power of the money. In other words, in case of deflation, the people in an economy are able to purchase more quantities of products with limited amounts of money.

Let us look at some of the points of difference between inflation and deflation.

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