There is a lot of talk of disinflation and deflation these days. But what do we mean by it all. Imagine a car moving at 100 mph . Suddenly it slows down to 20 mph almost in a very short period. That is disinflation. Imagine now that this car slows even further, going into reverse in another short interval. That is deflation.
Only the car is economy and speed is the inflation rates.
Does that mean that if inflation, which after all is a measure of expensiveness, goes down it will be good for consumers. Appears so on the surface, but in the current scenario it is not so. It rather shows that there is no demand or desire among consumers to buy. Less people buy, less economic activity, less growth. Hence a moderate inflation rate is considered to be good for economy.
If we take the latest figures, inflation is roughly half a percent, and soon would touch zero and might even go negative. A closer look at the data also shows that the food prices are still increasing at about 10 % . These both are ominous indicators for the economy. Because less inflation translates to slower growth and thus less money with people and more expensive food. This puts pressure on other economic activities and creates a sort of cycle.
So the government needs to put in a plan of pumping money into people’s hands by wide scale public infrastructure spending that would help in long term and short term both.