Inflation

Inflation – definition

Inflation refers to a rise in the average level of prices sustained over time, which also corresponds to a fall in the internal (domestic) purchasing power of money.

This can be contrasted with deflation which is a fall in the average level of prices, and disinflation, which is a fall in the rate of inflation – say, from 3% to 2%.

• What is ‘wrong’ with inflation?

Some inflation is considered ‘acceptable’ – hence the target for infation in most advanced economies is 2% (rather than 0%).

• How is inflation measured?