Which inflation scenario describes a general rise in prices with the rate of increase slowing down?

• A. Inflation
• B. Deflation
• C. Stagflation
• D. Disinflation

Answer: (D)

Prices still rise, but the pace of that rise slows down. That deceleration in the inflation rate is disinflation. For example, if prices increase by 4% one year and then by 2% the next, the overall price level is higher, but the rate of increase has fallen. Deflation would mean prices fall overall. Stagflation combines inflation with weak economic growth and high unemployment, not just a slower rise in prices. So the scenario described fits disinflation.