What it is
Disinflation is an economic phenomenon where the general price level of goods and services continues to increase, but the rate of that increase diminishes over time. For example, if inflation falls from 5% to 3%, the economy is experiencing disinflation. This is distinct from deflation, where the general price level actually decreases. Disinflation often occurs after a period of high inflation, as central banks tighten monetary policy or supply chain pressures ease.
Disinflation is often observed in economic data such as the Consumer Price Index (CPI) or PCE inflation, showing smaller month-over-month or year-over-year increases. For central banks, disinflation can signal that their monetary policy actions are working to cool the economy without triggering a recession. Markets often react to signs of disinflation with optimism, as it can suggest a potential end to rate-hike cycles and even the possibility of future rate-cuts, benefiting bond and equity markets.
Why it matters
Disinflation suggests easing price pressures and can signal a shift in central bank policy, potentially leading to lower interest rates and impacting investment returns.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice