What is Inflation?
A simple commonly used definition of the word inflation is simply "an
increase in the price you pay for goods."
In other words, a decline in the purchasing power of your
money".
But there is more to inflation than that. There is "Price
Inflation" and "Monetary Inflation".
Technically, Price Inflation is when prices get higher
or it takes more money to buy the same item.
Monetary Inflation is an increase in the money supply which
generally results in price inflation. This acts as a
"hidden tax" on the consumers in that country.
Monetary inflation is commonly referred to as the
government "printing money" although the actual process is a
bit more complex than just cranking up the printing presses
the effects are essentially the same.
As the money supply increases the currency loses it's
purchasing power and the price of goods and services
increases. This process usually takes 18 months to 2
years so the government is able to spend the newly minted
dollars at the old value before consumers realize that they
have been cheated into accepting something that will
purchase less than they originally thought it would.
See
How does the Money Supply affect our Inflation Rate?
Inflation is measured by the Bureau of Labor Statistics in
the United States using the Consumer Price Index. See
What is the Difference between Inflation and the Consumer
Price Index?
However, it appears that the meaning of the word inflation has changed
over time. See our article,
"What is the Real definition of Inflation?" for a more detailed discussion of how the definition has changed and what that
actually means to you the consumer.
Other articles you might find helpful:
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