Inflation means the general price level is rising. Deflation means the general price level is falling. The difference is the direction in which prices are moving across the economy, not what happens to the price of one product.

For Cambridge International AS Level Economics, this is part of Price stability (4.6.1), which also covers disinflation.

How can you tell the difference?

The inflation rate measures how quickly the general price level changes. If a consumer price index rises from $100$ to $105$ , prices have risen by $5%5\%$ on average: that is inflation. If the index then falls from $105$ to $103$ , the general price level has fallen: that is deflation. The index is still above its original value of $100$ , but prices fell during the second period.

A consumer price index tracks the cost of a representative basket of goods and services. Comparing its values over time helps distinguish a change in the price level from a change in the rate at which that level rises. Individual prices can move differently.

Disinflation is different from both. It means the inflation rate has fallen, while the general price level is still rising. For example, if inflation slows from $8%8\%$ to $3%3\%$ , prices are rising more slowly; they are not falling.

Why does it matter?

Inflation reduces what a given amount of money can buy if incomes do not keep pace with prices. Deflation may seem helpful to shoppers, but a sustained fall in prices can lead consumers to delay spending. Firms may then receive less revenue and cut production or employment. These are possible effects, not automatic outcomes: the cause and duration of the price change matter.

Common exam mistake: writing that falling inflation means deflation. Check whether the price level has actually fallen. If it is still rising, even at a slower rate, the correct term is disinflation.