{"id":1134,"date":"2019-10-10T20:04:00","date_gmt":"2019-10-10T20:04:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1134"},"modified":"2026-03-18T09:49:11","modified_gmt":"2026-03-18T09:49:11","slug":"explain-inflation-hyperinflation-disinflation-deflation","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/","title":{"rendered":"Explain Inflation, Hyperinflation, Disinflation and Deflation"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which statement about inflation, disinflation, and deflation is most accurate?\",\n    \"text\": \"Which of the following statements is most likely accurate?\\n\\nA. If the price of oil rises in an economy, the inflation rate increases.\\n\\nB. In a disinflationary environment, the overall price level declines.\\n\\nC. Deflation occurs when the inflation rates turn negative.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C.\\n\\nDeflation occurs when inflation rates turn negative, meaning the overall price level is falling. Disinflation refers to a decrease in the rate of inflation, not a decline in the price level, while changes in oil prices do not necessarily guarantee an increase in inflation.\"\n    }\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Understanding Business Cycles (2022 Level I CFA\u00ae Exam \u2013 Reading 11)\",\n  \"description\": \"This video lesson covers the fundamentals of business cycles, including their phases\u2014expansion, peak, contraction, and trough\u2014and how factors like employment, wages, interest rates, and inflation behave throughout these phases. It also explores economic theories, unemployment types, inflation measurement, and key economic indicators that help analysts forecast future economic conditions.\",\n  \"uploadDate\": \"2018-11-12T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/IP3HiHY1YA0\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=IP3HiHY1YA0\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/IP3HiHY1YA0\",\n  \"duration\": \"PT28M52S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/IP3HiHY1YA0?si=vS5gFqQHFyJCiBOW\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n<h2><strong>Inflation<\/strong><\/h2>\n<p>Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time.\u00a0 Fewer goods and services are bought when price levels rise hence the reduction in purchasing power. Also, the main measure of inflation is the inflation rate. Inflation rate is the percentage change in a price index. Unlike deflation, inflation is occasioned by the following circumstances:<\/p>\n<ul>\n<li>when money supply increases faster than the economic growth can sustain; or<\/li>\n<li>when large amounts of money are injected into the economy.<\/li>\n<\/ul>\n<p>Inflation has its advantages and limitations.<\/p>\n<h4><strong>Advantages<\/strong><\/h4>\n<ul>\n<li>Reduction in the amount of real private and public debt; and<\/li>\n<li>Increased employment because of nominal wage rigidity.<\/li>\n<\/ul>\n<h4><strong>Limitations<\/strong><\/h4>\n<ul>\n<li>Increased opportunity cost of holding money;<\/li>\n<li>Discourages savings and investments; and<\/li>\n<li>Consumers begin amassing goods in fear of future rise in prices.<\/li>\n<\/ul>\n<h2><strong>Hyperinflation<\/strong><\/h2>\n<p>Hyperinflation is an extreme case of inflation where the inflation rate increases above 100%. During hyperinflationary periods, the price level increases by about 500% to 1000% per year. Here, prices cannot be controlled.<\/p>\n<p>Hyperinflation happens when there is significant rise in money supply that cannot be supported by economic growth. As a result, supply and demand for money are at a disequilibrium.<\/p>\n<h4><strong>Causes of Hyperinflation<\/strong><\/h4>\n<ul>\n<li>An imbalance between money demand and supply;<\/li>\n<li>Excess printing of currency by the central bank; and<\/li>\n<li>When people lose confidence in their country\u2019s currency.<\/li>\n<\/ul>\n<h4><strong>Effects of Hyperinflation<\/strong><\/h4>\n<ul>\n<li>Borrowers gain at the expense of lenders; and<\/li>\n<li>The public transfers wealth to the government.<\/li>\n<\/ul>\n<h2><strong>Deflation<\/strong><\/h2>\n<p>Deflation is a decrease in the price level due to reduced supply of money in an economy. Although it raises consumers&#8217; purchasing power, deflation may have negative outcomes on economic stability and growth. During a period of deflation, the inflation rate falls below 0%.<\/p>\n<h4><strong>Causes of Deflation<\/strong><\/h4>\n<ul>\n<li>Reduced money supply; or<\/li>\n<li>Increased economic productivity, which results in the production of more goods than there is demand for.<\/li>\n<\/ul>\n<h4><strong>Effects of Deflation<\/strong><\/h4>\n<ul>\n<li>It discourages expenditure and investments; and<\/li>\n<li>It decreases aggregate demand.<\/li>\n<\/ul>\n<h2><strong>Disinflation<\/strong><\/h2>\n<p>Whereas deflation is negative economic growth, such a -5%, disinflation is simply a reduction in the inflation rate. For instance, the inflation rate can fall from 9% in one year to 7% in the next year. It occurs when the rate at which prices are rising is diminishing.<\/p>\n<p>It is important to note that disinflation does not signal the slowing down of the economy&#8217;s growth; it signals a slow down in the growth rate of inflation.<\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following statements is <em>most likely<\/em> accurate?<\/p>\n<p>A. If the price of oil rises in an economy, the inflation rate increases<\/p>\n<p>B. In a disinflationary environment, the overall price level declines<\/p>\n<p>C. Deflation occurs when the inflation rates turn negative<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is C.<\/p>\n<p>Deflation, or negative inflation, happens when prices fall because the supply of goods is higher than the demand for those goods.<\/p>\n<\/blockquote>\n<p><em>Reading 15 LOS 15e: <\/em><\/p>\n<p><em>Explain inflation, hyperinflation, disinflation, and deflation<\/em><\/p>\n<div class=\"notes_inv\"><hr \/>\n<p><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/learning-sessions-curriculum-economics\/\"><em>Economics &#8211; Learning Sessions<\/em><\/a><\/p>\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>Inflation Inflation is the persistent increase in the general price level of goods and services in an economy over a given period of time.\u00a0 Fewer goods and services are bought when price levels rise hence the reduction in purchasing power&#8230;.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"class_list":["post-1134","post","type-post","status-publish","format-standard","hentry","category-economics","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Inflation, Deflation &amp; Disinflation Explained | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inflation, Deflation &amp; Disinflation Explained | CFA Level 1\" \/>\n<meta property=\"og:description\" content=\"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\" \/>\n<meta property=\"og:site_name\" content=\"AnalystPrep | CFA\u00ae Exam Study Notes\" \/>\n<meta property=\"article:published_time\" content=\"2019-10-10T20:04:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2026-03-18T09:49:11+00:00\" \/>\n<meta name=\"author\" content=\"Brian Masibo\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Brian Masibo\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\"},\"author\":{\"name\":\"Brian Masibo\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183\"},\"headline\":\"Explain Inflation, Hyperinflation, Disinflation and Deflation\",\"datePublished\":\"2019-10-10T20:04:00+00:00\",\"dateModified\":\"2026-03-18T09:49:11+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\"},\"wordCount\":490,\"articleSection\":[\"Economics\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\",\"name\":\"Inflation, Deflation & Disinflation Explained | CFA Level 1\",\"isPartOf\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\"},\"datePublished\":\"2019-10-10T20:04:00+00:00\",\"dateModified\":\"2026-03-18T09:49:11+00:00\",\"author\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183\"},\"description\":\"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.\",\"breadcrumb\":{\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Explain Inflation, Hyperinflation, Disinflation and Deflation\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#website\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/\",\"name\":\"AnalystPrep | CFA\u00ae Exam Study Notes\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183\",\"name\":\"Brian Masibo\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/stefan-150x150.png\",\"contentUrl\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/stefan-150x150.png\",\"caption\":\"Brian Masibo\"},\"url\":\"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/brian-masibo\/\"}]}<\/script>\n<meta property=\"og:video\" content=\"https:\/\/www.youtube.com\/embed\/IP3HiHY1YA0\" \/>\n<meta property=\"og:video:type\" content=\"text\/html\" \/>\n<meta property=\"og:video:duration\" content=\"1733\" \/>\n<meta property=\"og:video:width\" content=\"480\" \/>\n<meta property=\"og:video:height\" content=\"270\" \/>\n<meta property=\"ya:ovs:adult\" content=\"false\" \/>\n<meta property=\"ya:ovs:upload_date\" content=\"2019-10-10T20:04:00+00:00\" \/>\n<meta property=\"ya:ovs:allow_embed\" content=\"true\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Inflation, Deflation & Disinflation Explained | CFA Level 1","description":"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/","og_locale":"en_US","og_type":"article","og_title":"Inflation, Deflation & Disinflation Explained | CFA Level 1","og_description":"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.","og_url":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/","og_site_name":"AnalystPrep | CFA\u00ae Exam Study Notes","article_published_time":"2019-10-10T20:04:00+00:00","article_modified_time":"2026-03-18T09:49:11+00:00","author":"Brian Masibo","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Brian Masibo","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#article","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/"},"author":{"name":"Brian Masibo","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183"},"headline":"Explain Inflation, Hyperinflation, Disinflation and Deflation","datePublished":"2019-10-10T20:04:00+00:00","dateModified":"2026-03-18T09:49:11+00:00","mainEntityOfPage":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/"},"wordCount":490,"articleSection":["Economics"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/","name":"Inflation, Deflation & Disinflation Explained | CFA Level 1","isPartOf":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website"},"datePublished":"2019-10-10T20:04:00+00:00","dateModified":"2026-03-18T09:49:11+00:00","author":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183"},"description":"Understand inflation, hyperinflation, deflation, and disinflation, their causes, and their impact on the economy and purchasing power.","breadcrumb":{"@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/economics\/explain-inflation-hyperinflation-disinflation-deflation\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/analystprep.com\/cfa-level-1-exam\/"},{"@type":"ListItem","position":2,"name":"Explain Inflation, Hyperinflation, Disinflation and Deflation"}]},{"@type":"WebSite","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#website","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/","name":"AnalystPrep | CFA\u00ae Exam Study Notes","description":"","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/analystprep.com\/cfa-level-1-exam\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Person","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/224cadd695f477a293f18471cf4e4183","name":"Brian Masibo","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/analystprep.com\/cfa-level-1-exam\/#\/schema\/person\/image\/","url":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/stefan-150x150.png","contentUrl":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2016\/09\/stefan-150x150.png","caption":"Brian Masibo"},"url":"https:\/\/analystprep.com\/cfa-level-1-exam\/author\/brian-masibo\/"}]},"og_video":"https:\/\/www.youtube.com\/embed\/IP3HiHY1YA0","og_video_type":"text\/html","og_video_duration":"1733","og_video_width":"480","og_video_height":"270","ya_ovs_adult":"false","ya_ovs_upload_date":"2019-10-10T20:04:00+00:00","ya_ovs_allow_embed":"true"},"_links":{"self":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1134","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/comments?post=1134"}],"version-history":[{"count":33,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1134\/revisions"}],"predecessor-version":[{"id":59774,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/posts\/1134\/revisions\/59774"}],"wp:attachment":[{"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/media?parent=1134"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/categories?post=1134"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-json\/wp\/v2\/tags?post=1134"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}