"Inflation is falling" and "prices are falling" seem to say the same thing. They say the opposite. One speaks of the rate, the speed at which prices climb; the other of the level, the price they have reached. To understand these three words, inflation, disinflation, deflation, is to understand why a shopping cart can stay expensive even as the end of inflation is announced.
1 Flow or stock?
Two quantities, often confused.
The distinction
Speed is not distance
The inflation rate is a flow: it measures how much prices have risen over a period, in percent per year. The price level is a stock: it is the price of the basket at a given moment, the accumulated result of every past increase. An image: the rate is a car's speed; the level, the distance already travelled. Slowing down (a falling rate) does not bring the car back.
2 Inflation
The normal regime, in small doses.
A positive rate
Prices climb
There is inflation when the general price level rises in a sustained way: the rate is positive. A basket at 10 becomes 10.40 with 4% inflation. Moderate inflation is not an anomaly: central banks target it, around 2%. Why not zero? Because a small positive cushion keeps the opposite danger, deflation, at bay, and lets wages adjust without a brutal nominal cut.
3 Disinflation
The trap of language.
A falling rate, but still positive
Slowing is not reversing
Disinflation is the fall in the rate of inflation: prices still climb, but more slowly. The basket at 10.40 becomes 10.70, not 10. This is exactly what economies experience after an inflationary peak: the rate drops back toward 2%, and victory is declared, but the level stays perched right at the top. Hence the misunderstanding: "inflation is defeated" does not mean "prices have come back". They do not come back.
4 Deflation
The only case where prices fall, and why it is dreaded.
A negative rate
Prices truly fall, and that is dangerous
Deflation is the fall in the level of prices: the rate turns negative. It is the only scenario where the basket comes back down. One might rejoice: it is in fact what economists fear most. If prices are falling, people postpone purchases waiting for them to fall further; demand collapses, profits and jobs with it, and prices fall again. Worse, deflation increases the real burden of debt: every dollar owed becomes harder to repay. Japan lived through this for decades.
⚠️
The spiral. Falling prices → purchases postponed → falling demand → unemployment → falling incomes → prices fall again. A vicious circle that is hard to break.
5 Takeaways
To remember.
✓
The inflation rate is a flow (speed); the price level is a stock (distance travelled).
✓
Disinflation = the rate falls but stays positive: prices still climb, more slowly. They do not reverse.
✓
Only deflation (a negative rate) makes prices fall, but it is dreaded: spiral, recession, heavier debts.
This notion sheds light on these analyses
First published: 22 June 2026