Thursday, March 26, 2009

Difference between Disinflation and Deflation

I think many times I've have mentioned the word deflation while elsewhere, they are actually using the term disinflation. They are different terms.

Disinflation means a decline in the rate of increase of the consumer price index (CPI). For e.g., Year x inflation is 3%. Year x+1 inflation is 2%. Year x+2 inflation is 1%.

Deflation means a sustained decrease of the CPI, where the annual change in the CPI is negative year on year. For e.g., Year x inflation is -0.1%. Year x+1 inflation is -1%. Year x+2 inflation is -2%.

Disinflation is already very obvious since last year. I really meant deflation, at least for Singapore. Reason is that I do not believe the global financial sector is going to pick itself by this year. I see this as a 3-4 years of consolidation and "cleaning up" for the financial sector. This means that credit will be tight while this is on-going. If credit is tight, how could the economy be booming? Highly unlikely. Demand will be down sharply.

Currently, I still see at least 2 years of negative CPI, which is the reason why I kept mentioning deflation. Singapore is too dependent on the US and EU and unfortunately, both have too much excess that will take a long time to clear.


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Anonymous said...

Have you ever considered adding more videos to your blog posts to keep the readers more entertained? I mean I just read through the entire article of yours and it was quite good but since Im more of a visual learner,I found that to be more helpful well let me know how it turns out! I love what you guys are always up too. Such clever work and reporting! Keep up the great works guys Ive added you guys to my blogroll. This is a great article thanks for sharing this informative information.. I will visit your blog regularly for some latest post.

chantc said...

Thank you for your comments. Its a little difficult for me to find videos that matches what I'm writing. I'll try to add some pictorial elements whenever possible.

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