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- Created 2012-02-26
is a rise in the general
level of prices
of goods and services in an
over a period of time.
When the general price level rises, each unit of
buys fewer goods and services. Consequently, inflation reflects a reduction in the
per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general
consumer price index
) over time.
Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include an increase in the
of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of
as consumers begin
out of concern that prices will increase in the future. Positive effects include ensuring that central banks can adjust
real interest rate
s (intended to mitigate
s), and encouraging investment in non-monetary capital projects.
Economists generally agree that high rates of inflation and
are caused by an excessive growth of the
. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in
for goods and services, or changes in available supplies such as during
, as well as to changes in the
velocity of money
supply measures; in particular the MZM ("Money Zero Maturity") supply velocity. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Today, most economists favor a low and steady rate of inflation. Low (as opposed to zero or
) inflation reduces the severity of economic
by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a
from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to
. Generally, these monetary authorities are the
s that control
through the setting of
open market operations
, and through the setting of banking
from Wikipedia (last updated: 20 May), licensed under
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United States Bureau of Labor Statistics Consumer Price Index homepage
Summary of current international inflation figures - CPI and HICP
Summary of current inflation in Euro Area - CPI and HICP
Real versus nominal value (economics)
Steady state economy
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