yesterday, a discussion Market (with Justin Ho) on how these terms fit together. To explain, consider a broad price index (eg, CPI). These concepts can then be illustrated graphically:
figure 1: CPI, 1982-84=100 (blue, left scale), CPI year-on-year inflation, % (brown, right scale). Green shading indicates deflation, red arrows indicate periods of deflation, sky blue arrows indicate positive inflation, and grey arrows indicate periods of accelerating inflation. Source: BLS and author’s calculations.
In particular, you can deflation with positive inflation and deflation with positive inflation. Obviously, this involves some judgment (do you use year-on-year inflation or month-on-month inflation, or even month-on-month inflation, when you go into a shorter horizon, do you call a month’s decline in inflation “deflationary” or not).
