2.3.3 Inflation and deflation

Inflation

A sustained rise in the general price level or the rate of change of average prices in an economy.

Deflation

A sustained fall in the general price level.

Disinflation

A fall in the rate at which average prices are rising.

Hyperinflation

Rapid, excessive, and out-of-control general price increases in an economy, often exceeding 50% per month.

Consumer Price Index (CPI)

A measure of changes in the price of a representative basket of consumer goods and services.

Retail Price Index (RPI)

A measure of inflation that includes housing costs and is used for adjusting pensions and benefits.

Demand-pull inflation

Inflation caused by excessive demand in the economy for goods and services.

Cost-push inflation

Inflation that occurs when firms respond to rising costs of production by increasing prices.

Aggregate demand (AD)

The total demand for goods and services within an economy.

Wage-price spiral

A phenomenon where rising wages lead to increased costs for companies, which results in higher prices, causing workers to demand higher wages.

World commodity prices

Prices of primary goods that are traded in the global market, such as oil and food.

Economic growth

An increase in the production of goods and services in an economy over a period of time.

Stagnant growth

A period where economic growth is slow or absent.

Price inelastic

Describes products for which demand does not change much with price fluctuations.

Bank of England

The central bank of the United Kingdom, which sets monetary policy including inflation targets.

Inflation target

A specific level of inflation that a central bank aims to achieve, usually expressed as a percentage.

Buyer confidence

The level of trust consumers have in the economy and their financial situation, impacting their spending behavior.

Real income

Income adjusted for inflation, representing the purchasing power of income.

Consumer confidence

The degree of optimism that consumers feel about the overall state of the economy and their personal financial situation.

Monetary Policy

The process by which a central bank manages the money supply and interest rates to influence economic growth.

Interest Rate

The cost of borrowing money, usually expressed as a percentage of the amount borrowed.

Fiscal Policy

Government spending and taxation policies used to influence economic conditions.

Inflation Rate

The rate at which the general level of prices for goods and services is rising.

Supply Chain Disruptions

Interruptions in the flow of goods and services along the supply chain, which can lead to inflation.

Quantitative Easing

An unconventional monetary policy where a central bank buys financial assets to increase the money supply.

Price Stickiness

The tendency of prices to remain unchanged even when the supply or demand changes.

Consumer Goods

Products that are purchased for personal use, as opposed to capital goods which are used to produce other goods.

Hyperdeflation

An extreme and rapid decrease in the general price level of goods and services.

Producer Price Index (PPI)

A measure of the average changes in prices received by domestic producers for their output.

Stagflation

An economic condition characterized by stagnant growth, high unemployment, and high inflation.

Purchasing Power

The amount of goods and services that can be bought with a unit of currency.

Fiscal Deficit

A situation when the government's total expenditures exceed its total revenues.

Interest Rate Policy

The strategy implemented by a central bank regarding the level of interest rates to influence economic activity.

Synthetic Inflation

Inflation caused by artificial scarcity or manipulation in the supply chain.

Money Supply

The total amount of money currently in circulation or in existence in an economy.

Inflation Expectations

The rate at which consumers expect prices to rise in the future, influencing their spending and saving behavior.

Recessionary Gap

The difference between actual output and potential output in an economy when a recession occurs.