What Inflation Rate is Considered Deflation?

Which statement is most accurate regarding the percentage rate used to determine disinflation?

• Disinflation is precisely defined as maintaining a 0% inflation rate throughout an entire fiscal year.
• There is no absolute criterion, but some literature suggests inflation rates of 3-4% per year or lower are considered disinflation.
• Any country with an inflation rate of 3-4% per year is automatically considered by economists to be in a state of disinflation.
• Disinflation is synonymous with deflation and refers to a negative inflation rate (decreasing prices).

Disinflation in economics refers to a very low and gradually decreasing inflation rate. It is a challenge in macroeconomic management. In Vietnam, many people often confuse disinflation with deflation.

There is no precise criterion for the inflation rate percentage that defines disinflation. Some economic literature suggests that inflation rates of 3-4% per year or lower are classified as disinflation.

However, in countries where monetary authorities (central banks) strongly dislike inflation, such as Germany and Japan, an inflation rate of 3-4% per year is considered entirely normal, not low enough to be deemed disinflation. In Vietnam during 2002-2003, the inflation rate was 3-4% per year, but many Vietnamese economists considered it disinflation.

In economics, what phenomenon does the term “Bubble” refer to?

• A stable and sustainable growth in market and asset prices over an extended period due to production development.
• An economic cycle characterized by a rapid surge in market prices, particularly asset prices, followed by a sudden value decline.
• A low inflation rate that enables easier asset purchases and savings accumulation for individuals.
• A decline in consumer goods prices across the market due to oversupply, leading to production stagnation.

A Bubble is an economic cycle marked by a rapid escalation in market prices, especially asset prices, followed by a swift value decline.

In monetary policy, how is “Currency Devaluation” understood?

• A phenomenon where the value of the domestic currency automatically decreases relative to foreign currencies due to natural market supply and demand forces.
• The act of authorities actively increasing the value of the domestic currency compared to another currency or currency standard.
• A nation intentionally adjusting to reduce the value of its currency relative to other currencies or currency standards.
• A situation occurring only in countries with a fully floating exchange rate mechanism to regulate the economy.

Currency Devaluation is the intentional reduction of a nation’s currency value relative to another currency, group of currencies, or currency standard. Countries with fixed or semi-fixed exchange rates use this monetary policy tool. It is often confused with depreciation and contrasts with revaluation, which refers to adjusting the exchange rate of a currency.