Inflation

Inflation is a rise in the general level of prices of goods and services in a given economy over a period of time. It may also refer to the rise in the prices of some more specific set of goods or services. In either case, it is measured as the percentage rate of change of a price index.

Mainstream economists overwhelmingly agree that high rates of inflation are caused by high rates of growth of the money supply. Views on the factors that determine moderate rates of inflation, especially in the short run, are more varied: changes in inflation are sometimes attributed mostly to changes in real demand for goods and services or fluctuations in available supplies (i.e. changes in scarcity), and sometimes to changes in the supply or demand for money. In the mid-twentieth century, two camps disagreed strongly on the main causes of inflation (at moderate rates): the "monetarists" argued that money supply dominated all other factors in determining inflation, while "Keynesians" argued that real demand was often more important than changes in the money supply.

A variety of inflation measures are in use, because there are many different price indices, designed to measure different sets of prices that affect different people. Two widely known indices for which inflation rates are commonly reported are the Consumer Price Index (CPI), which measures nominal consumer prices, and the GDP deflator, which measures the nominal prices of goods and services produced by a given country or region.

Related economic concepts include: deflation, a general falling level of prices; disinflation, a decrease in the rate of inflation; hyperinflation, an out-of-control inflationary spiral; stagflation, a combination of inflation and rising unemployment; and reflation, which is an attempt to raise prices to counteract deflationary pressures.

In classical political economy, inflation meant increasing the money supply, while deflation meant decreasing it. Economists from some schools of economic thought still retain this usage. In contemporary economic terminology, these would usually be referred to as expansionary and contractionary monetary policies.