Does falling inflation means falling prices?

Since last year, inflation has been making headlines sometimes for breaching a high of 12%, hitting new lows or becoming zero. The common misconception during this period was that when inflation falls, prices would fall. That however, is not true. Falling inflation rates doesn't mean falling of prices, it only implies that the rate at which the prices of goods are growing is low.


So when do prices really fall? The answer is when the inflation turns negative or a deflationatory situation. Inflation for the first time turned negative touching -1.6%. What this means is that prices in this week have fallen by 1.6% as compared to the same time last year.

Inflation is the rate of change in prices. So if the inflation is 10%, it mean prices are growing at 10%. If the inflation drops to 2%, it means prices are increasing at 2% instead of 10%.

When the inflation turns negative, you can see actual fall in prices. So, now that inflation has become negative, you will see the actual fall in prices.