Inflation: meaning, history, measurement, causes

Definition of inflation and purchasing power

In economics, inflation is defined as an increase in the average price of goods and services measured in money terms. It is typically tracked using a price index such as the Consumer Price Index (CPI). When the general price level rises, each unit of currency can buy fewer goods and services, meaning inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, which is a decrease in the general price level. The most common way to describe inflation is the inflation rate, meaning the annualized percentage change in a general price index. Because inflation reflects changes in the overall price level, it is distinct from changes in individual relative prices caused by shifts in preferences or other non-general factors.

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Inflation rate and price index measurement

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