10 Difference Between Inflation And Deflation

You will find out Difference Between Inflation And Deflation.Inflation and deflation , two concepts that we often hear in the press, radio and television and that, however, are not clear to everyone. Both terms are related to the price index , a key indicator of a country’s economy.

10 Difference Between Inflation And Deflation.

Difference Between Inflation And Deflation


“Inflation is a state in which the value of money is falling and prices are rising”.


“Deflation is a state in which the value of money is rising and prices are falling”.   

Inflation          Deflation

  1. Price Level:

During inflation the price During deflation the price level level increases.      decreases.

  1. Value of Money:

Due to rise in price level, Due to fall in price level, the value the value of money decreases.of money increases.

  1. Purchasing Power:

Due to decrease in the Due to increase in the value of

value of money, the purchasing           money, the purchasing power of

power of the people also decreases.    the people also increases.

  1. Effect on Savings:

I           he people suffers loss on         People try to maximize their

the savings during inflation due           savings during deflation due to

decicase in value of money.    increase in the value of money.

5         Demand for Goods:

During inflation, the price During deflation, lower price level level of goods increases which makes the goods cheaper which ।(duces the demand for goods at          increases the demand for goods at

national and international level.           national and international level.

6 .Effect on Consumers:

Increase in price level  During deflation, the purchasing

also increases the cost of living.          power of people increases and the

I hie to this the consumers suffer consumers buy more goods with loss.         their income.

  1. Effect on Government:

inflation increases the During deflation, the investment, government expenditures which price and employment level fall icsults in economic crises and which creates problems for political unrest.           government in the formulation of

economic policies.

8        Salaries and Wages:

During inflation, salaries During deflation, the purchasing and wages do not increase in the power of money increases which same proportion as that of prices. provides benefit to the people to some extent.

  1. Effect on Business:

During inflation, producers,     During deflation          the businessmen

wholesalers and retailers earn  suffer loss due to fall in price

more profits due to increase in            level.

price level.

10         Effect on Debtors:

When prices increase and In case of deflation the debtors are the value of money decrease, the not benefited.

debtors get benefit from the situation.

  1. Effects on Creditors:

Creditors          suffer   loss      Creditors get    benefit during

during inflation.           deflation.

  1. Effect on Agriculturists:

During inflation,          the       During deflation,         the farmers are

prices of agricultural products less benefited as          the prices of their

increase and farmers get higher output decrease.


  1. Effect on Taxpayers:

In inflation the taxpayers         During deflation the     taxpayers

gain benefit as ’ they pay tax   suffer loss as they pay high value

having low value due to high   due to low prices.


  1. Level of Inves^nent:

When prices are rising the        During deflation, the price level

business and economic activities         falls which reduces the profit

increase which stimulates margin and level of investment investment.            falls.

15      Central Bank Policy:

During inflation, the    Credit expansion policy is adopted

central bank adopts credit        by the central bank during

contraction policy.       deflation.

by Abdullah Sam
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