The concepts of inflation, deflation and disinflation
Inflation means prices across the economy are rising over time. Deflation means they are falling. Disinflation means prices are still rising, but more slowly than before.
Formula
Inflation rate = ((CPI this year − CPI last year) / CPI last year) × 100
Real World
UK CPI inflation peaked at 11.1% in October 2022, driven by energy prices — yet by mid-2023 it was falling (disinflation), eventually dropping below 2%, showing all three concepts playing out in sequence.
Exam Focus
Never confuse disinflation with deflation — disinflation is still positive inflation; state this explicitly to earn the distinction mark.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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