Inflation
Also known as: price rise · monetary erosion · purchase power loss · higher prices · economic inflation
- 1Inflation represents a reduction in the purchasing power of money.
- 2It is measured by the annualized percentage change in a price index.
- 3The consumer price index (CPI) is the most common tool for tracking inflation.
- 4The opposite of inflation is known as deflation.
- 5It reflects a universal shift in the average price of goods and services.
In economics, inflation is an increase in the average price of goods and services in terms of money, though it originally referred to the increase of the money supply that can cause such a universal shift.
Connections4
the core economic phenomenon described
The Price Revolution is defined as a period of sustained, high-rate inflation that transformed the European economy in the 16th century.
central economic problem addressed by monetarist policy
Monetarists famously argue that inflation is always and everywhere a monetary phenomenon caused by excessive growth in the money supply.
phenomenon explained by the quantity theory
The quantity theory of money provides a primary explanation for inflation, suggesting that excessive growth in the money supply leads to a general increase in price levels.
consequence of velocity changes
Increases in the velocity of money, if not matched by increases in output, can lead to inflationary pressure as more money chases the same amount of goods.
Inflation is defined as a sustained increase in the average price of goods and services within an economy, which results in a decrease in the purchasing power of money. While the term originally referred to an expansion of the money supply, it is now commonly understood as the resulting rise in the general price level.
Global rates of inflation in October 2026 among International Monetary Fund membersWikimedia CommonsUK and US monthly inflation rates from January 1989 [ 1 ] [ 2 ]Wikimedia CommonsUS historical inflation (in blue) and deflation (in green) from the mid-17th century to the beginning of the 21stWikimedia CommonsSilver purity through time in early Roman imperial silver coins. To increase the number of silver coins in circulation while short on silver, the Roman imperial government repeatedly debased the coins. They melted relatively pure silver coins and then struck new silver coins of lower purity but of nominally equal valu...Wikimedia CommonsThe U.S. effective federal funds rate charted over fifty yearsWikimedia CommonsPPI is a leading indicator, CPI and PCE lag [ 50 ] PPI Core PPI CPI Core CPI PCE Core PCEWikimedia CommonsConsumer price index by country in % (2024, relative to 2010) [ 73 ] 100 to 110 110 to 120 120 to 130 130 to 140 140 to 150 150 to 200 200 to 300 300 to 1000 above 1000 no dataWikimedia CommonsInflation Deflation M2 money supply increases Year/YearWikimedia CommonsWikimedia Commons file from Category:Inflation for Inflation.Wikimedia Commons; Unknown author Unknown author or not provided; U.S. National Archives and Records Administration; Public domain; Wikimedia Commons: Category:InflationUS CPI, Real GDP, M2 and Money Velocity, from Q1 1960 to Q1 2011. CPI, Real GDP, and M2 are indexed to 100 in Q1 1960. Money Velocity is shown on a different scale (on right). Data series obtained from the Federal Reserve Economic Data (FRED) database provided by Economic Research at the St. Louis Fed. [1]Wikimedia Commons; Lawrencekhoo; Own work; CC0; Wikimedia Commons; Wikidata P18 (image)Consumer Price Indices of selected countriesWikimedia Commons; me; Data Source: International Financial Statistics, IMF, Washington, based on the following different national consumer price indices: Austria: Cpi 20 Towns /Index Number /Base year: 2000 /averages /Cnt: Austria /Source: IMF, Wash; Germany... Economists measure this phenomenon using a price index, most notably the consumer price index (CPI). The inflation rate, which tracks the annualized percentage change in these indices, serves as a critical indicator of economic health. The opposite condition, characterized by a general decline in prices, is known as deflation.