Why this is mistaken
An index level is measured relative to its base. Inflation is a positive percentage change, disinflation is a smaller positive rate than before, and deflation is a negative rate for the specified broad index and period.
Use a three-case control: positive and slowing is disinflation; negative is deflation; positive and accelerating is faster inflation. None tells you every household's basket or the cause of the movement.
Where to watch
When this mistake may appear
- A price index level and rate are shown together.
- Current and prior inflation rates must be classified.
Check your work
Your work may contain this mistake if:
- Calls an index above 100 high inflation without comparing periods.
- Says prices fell when inflation slowed from 4% to 2%.
- Uses one product's price decline to establish economy-wide deflation.