Reflation is the act of stimulating the economy by increasing the money supply or by reducing taxes, seeking to bring the economy (specifically price level) back up to the long-term trend, following a dip in the business cycle. It is the opposite of disinflation, which seeks to return the economy back down to the long-term trend.
Reflation, which can be considered a form of inflation (increase in the price level), is contrasted with inflation (narrowly speaking) in that "bad" inflation is inflation above the long-term trend line, while reflation is a recovery of the price level when it has fallen below the trend line. For example, if inflation had been running at a 3% rate, but for one year it falls to 0%, the following year would need 6% inflation (actually 6.09% due to compounding) to catch back up to the long-term trend. This higher than normal inflation is considered reflation, since it is a return to trend, not exceeding the long-term trend.
This distinction is predicated on a theory of economic growth where there is long-term growth in the economy and price level, which is widely accepted in economics. Just as disinflation is considered an acceptable antidote to high inflation, reflation is considered to be an antidote to deflation (which, unlike inflation, is considered bad regardless of its magnitude).
Read more about Reflation: Policy
Other articles related to "reflation":
... In the absence of reflation, he predicted an end only after "needless and cruel bankruptcy, unemployment, and starvation", followed by "a new boom-depression sequence" Unless some counteracting cause comes along to ... Later commentators do not in general believe that reflation is sufficient, and primarily propose two solutions debt relief – particularly via inflation – and fiscal stimulus ...
... Originally it was used to describe a recovery of price to a previous desirable level after a fall caused by a recession ... Today it also (in addition to the above) describes the first phase in the recovery of an economy which is beginning to experience increasing prices at the end of a slump ...