Katana VentraIP

Inflation

In economics, inflation is a general increase in the prices of goods and services in an economy. This is usually measured using the consumer price index (CPI).[3][4][5][6] When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.[7][8] The opposite of CPI inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index.[9] As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose.

This article is about a rise in general price level. For the expansion of the early universe, see Inflation (cosmology). For other uses, see Inflation (disambiguation).

Changes in inflation are widely attributed to fluctuations in real demand for goods and services (also known as demand shocks, including changes in fiscal or monetary policy), changes in available supplies such as during energy crises (also known as supply shocks), or changes in inflation expectations, which may be self-fulfilling.[10] Moderate inflation affects economies in both positive and negative ways. The negative effects would include an increase in the opportunity cost of holding money, uncertainty over future inflation, which may discourage investment and savings, and, if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity,[11] allowing the central bank greater freedom in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.


Today, most economists favour a low and steady rate of inflation.[12] Low (as opposed to zero or negative) inflation reduces the probability of economic recessions by enabling the labor market to adjust more quickly in a downturn and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy while avoiding the costs associated with high inflation.[13] The task of keeping the rate of inflation low and stable is usually given to central banks that control monetary policy, normally through the setting of interest rates and by carrying out open market operations.[10]

(PPIs) which measures average changes in prices received by domestic producers for their output. This differs from the CPI in that price subsidization, profits, and taxes may cause the amount received by the producer to differ from what the consumer paid. There is also typically a delay between an increase in the PPI and any eventual increase in the CPI. Producer price index measures the pressure being put on producers by the costs of their raw materials. This could be "passed on" to consumers, or it could be absorbed by profits, or offset by increasing productivity. In India and the United States, an earlier version of the PPI was called the Wholesale price index.

Producer price indices

, which measure the price of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the "all in" cost of an employee.

Commodity price indices

: because food and oil prices can change quickly due to changes in supply and demand conditions in the food and oil markets, it can be difficult to detect the long run trend in price levels when those prices are included. Therefore, most statistical agencies also report a measure of 'core inflation', which removes the most volatile components (such as food and oil) from a broad price index like the CPI. Because core inflation is less affected by short run supply and demand conditions in specific markets, central banks rely on it to better measure the inflationary effect of current monetary policy.

Core price indices

Demand shocks may both decrease and increase inflation. So-called may be caused by increases in aggregate demand due to increased private and government spending,[75][76] etc. Conversely, negative demand shocks may be caused by contractionary economic policy.

demand-pull inflation

Supply shocks may also lead to both higher or lower inflation, depending on the character of the shock. is caused by a drop in aggregate supply (potential output). This may be due to natural disasters, war or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices.[77]

Cost-push inflation

Inflation expectations play a major role in forming actual inflation. High inflation can prompt employees to demand rapid wage increases to keep up with consumer prices. In this way, rising wages in turn can help fuel inflation as firms pass these higher labor costs on to their customers as higher prices, leading to a feedback loop. In the case of collective bargaining, wage growth may be set as a function of inflationary expectations, which will be higher when inflation is high. This can cause a . In a sense, inflation begets further inflationary expectations, which beget further (built-in) inflation.[77]

wage-price spiral

; Bernanke, Ben S.; Croushore, Dean (2005). Macroeconomics (5th ed.). Pearson. ISBN 978-0-32119963-8. Measurement of inflation is discussed in Ch. 2, pp. 45–50; Money growth & Inflation in Ch. 7, pp. 266–269; Keynesian business cycles and inflation in Ch. 9, pp. 308–348.

Abel, Andrew B.

(1997). Macroeconomics. Cambridge, Massachusetts: MIT Press. p. 895. ISBN 0-262-02436-5.

Barro, Robert J.

(2021). Macroeconomics (Eighth, global ed.). Harlow, England: Pearson. ISBN 978-0-134-89789-9.

Blanchard, Olivier

(2002). Macroeconomics (5th ed.). Worth. ISBN 978-0-71675237-0. Measurement of inflation is discussed in Ch. 2, pp. 22–32; Money growth & Inflation in Ch. 4, pp. 81–107; Keynesian business cycles and inflation in Ch. 9, pp. 238–255.

Mankiw, N. Gregory

; Taylor, John B. (1993). Macroeconomics. New York: W.W. Norton. p. 637. ISBN 0-393-96307-1.

Hall, Robert E.

; Wyplosz, Charles (1997). Macroeconomics: a European text. Oxford [Oxfordshire]: Oxford University Press. ISBN 0-19-877468-0.

Burda, Michael C.

World Bank, 2018. . Edited by Jongrim Ha, M. Ayhan Kose, and Franziska Ohnsorge.

Inflation in Emerging and Developing Economies: Evolution, Drivers and Policies

"The Honest Government's Guide to the Revenue From the Creation of Money", Journal of Political Economy, Vol. 82, No. 3, May/June 1974, pp. 598–606.

Auernheimer, Leonardo

and Alan S. Blinder, Macroeconomics: Principles and Policy, Tenth edition. Thomson South-Western, 2006. ISBN 0-324-22114-2.

Baumol, William J.

Nobel lecture: Inflation and unemployment 1977.

Friedman, Milton

The Economics of Money, Banking, and Financial Markets, New York, HarperCollins, 1995.

Mishkin, Frederic S.

"Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective" Archived August 26, 2013, at the Wayback Machine, Conference Series 53, June 9–11, 2008, Chatham, Massachusetts. (Also cf. Phillips curve article).

Federal Reserve Bank of Boston

Shiny app for the inflation in the European Union

OECD Consumer Price Index

United States Bureau of Labor Statistics – Consumer Price Index

General purpose compounded inflation calculator

Archived September 5, 2019, at the Wayback Machine (AIER)

U.S. Cost of Living Calculator (1913–present)

(US BLS)

U.S. Inflation Calculator (1913–present)

(FRASER)

U.S. Inflation (historical documents)

(Consumer Price Index) (Swedish Riksbank)

World Inflation (1290–2006)

World Bank annual inflation rates for all countries

Inflation Calculator