The Concept of Disinflation

Disinflation is a macroeconomic term referring to the deceleration in the rate of inflation. It involves a slight decrease in the inflation rate over a short duration, indicating a healthier economy.

• It's crucial to understand that disinflation is not synonymous with deflation , where the inflation rate turns negative, marking the exact opposite of inflation.

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The Trend of Inflation Softening:

• The government has mandated the RBI to maintain the consumer price index-based inflation ( CPI ) at 4 percent, with a permissible variation of +/- 2 percent.
• The inflation trend shows signs of softening as the rate dropped from a high of 7.8 percent in April 2022 to 4.7 percent in April 2023.
• The RBI projects the inflation rate for the fiscal year 2023-24 to be around 5.1 percent.
• Given the low inflation rate, the RBI decided to pause the rate hike decisions in the April and June 2023 monetary policies to evaluate the impact of previous rate hikes.
• Despite the pause, RBI Governor Shaktikanta Das clarified that this does not represent a change in the policy direction.
• In a recent monetary policy decision in June 2023, the RBI decided to keep the repo rate unchanged at 6.5 percent.
• Between May 2022 and February 2023, the central bank raised the repo rate by 250 basis points to control inflation.
• The RBI maintains the stability of the Indian financial system by conducting monetary policies since financial instabilities can hinder economic growth and obstruct monetary policy transmission.
• The roles of monetary policy and financial stability are complementary in maintaining price stability.

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