inflation
inflationA persistent tendency for prices and money wages to increase. Inflation is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index or a GDP deflator. Because of changes in the type and quality of goods available, measures of inflation are probably not reliable to closer than a margin of 1 or 2 per cent a year, but if prices rise faster than this there is no doubt that inflation exists. Economists have attempted to distinguish cost and demand inflation. Cost inflation is started by an increase in some element of costs, for example the oil price explosion of 1973–4. Demand inflation is due to too much aggregate demand. Once started, inflation tends to persist through an inflationary spiral, in which various prices and wage rates rise because others have risen. The inflation tax is the real cost to the holders of money due to its loss of real purchasing power during...
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