INFLATION

In economics, inflation is an increase in the general level of prices of a given kind. General inflation is a fall in the market value or purchasing power of money within an economy, as compared to currency devaluation which is the fall of the market value of a currency between economies. General inflation is referred to as a rise in the general level of prices. The former applies to the value of the currency within the national region of use, whereas the latter applies to the external value on international markets. The extent to which these two phenomena are related is open to economic debate.

Inflation is the opposite of deflation. Zero or very low positive inflation is called price stability.

In some contexts, the word “inflation” is used to mean an increase in the money supply, which is sometimes seen as the cause of price increases. Some economists (of the Austrian school) still prefer this meaning of the term, rather than to mean the price increases themselves. Thus, for example, some observers of the 1920s in the United States refer to “inflation” even though prices were not increasing at the time. Below, the word “inflation” will be used to refer to a general increase in prices unless otherwise specified.

Inflation can be contrasted with “reflation,” which is either a rise of prices from a deflated state, or alternately a reduction in the rate of deflation, that is, the general level of prices is falling, but at a decreasing rate. A related term is “disinflation”, which is a reduction in the rate of inflation but not enough to cause deflation.