WHAT IS THE DIFFERENCE BETWEEN INFLATION AND DEFLATION? - OTIS LAWYERS

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Identifying the symptoms and nature of inflation and deflation is not simple, because it is directly related to providing macroeconomic management solutions and the effectiveness of the proposed solutions, etc, as well as to prevent their negative effects and the possibility of outbreaks in practice. So what is the difference between inflation and deflation? Let's find out with OTIS LAWYERS in the article below!

What is inflation?

Inflation occurs when the general price level changes, prices and costs increase. According to the book "Macroeconomics" of Education Publishing House 1997 by PTS. Editor-in-chief Vu Dinh Bach, Inflation is understood as a continuous increase in the average price level over time.

Inflation (especially at high levels) does more harm than good, even destroying the socio-economy.

What is deflation?

Deflation is understood as a continuous reduction in the general price level of goods and services.

Deflation differs from discounting only in one economic area. A decrease in the price of consumer goods will not become deflation if there is a compensatory increase in the price of services.

Deflation is only harmful when it pulls and restrains general prices to a level that is unnecessarily low to stimulate investment - consumption and exploit a country's possible development potential, especially in the early stages industrialization requires rapid growth.

The relationship between inflation and deflation.

Inflation and deflation are two consecutive opposing processes as development trends of the economy. Inflation is an almost chronic state of the economy, so deflation also becomes a fairly frequent phenomenon. In other words, deflation is a special stage in the inflation cycle. It can be said that deflation appears as a potential trend that always accompanies inflation and is the combined result of solutions to curb inflation that have been implemented in practice.

Reality shows that the rates of inflation and deflation are quite closely related: the higher the inflation rate, the greater the deflation rate. Reducing inflation from 500% to 20% will be easier and faster than reducing inflation from 20% to 1-2%... This is partly explained by the objective existence of a "reasonable" inflation rate. and acceptable” of the economy. When inflation is too fast and too high compared to the safe "threshold" level, the destructive power becomes even greater, exceeding the economy's ability to bear it, forcing the government to quickly take necessary solutions to pull it back. As quickly as possible, inflation returns to an appropriate state if we do not want there to be a major disruption in the country's economic and political life. Furthermore, when hyperinflation or hyperinflation occurs, the cause of this phenomenon is easier to identify and more focused, so the solution proposed to overcome it also becomes "simple" and correct. more precise. Along with the deflation process, the factors causing inflation are controlled and gradually eliminated.