Inflation

Inflation

An increase in the overall price level.

Price level

The average of current prices across the entire spectrum of goods and services produced in the economy.

Cost-push inflation

Inflation caused by rising production costs, leading to increased prices for consumers.

Demand-pull inflation

When demand for goods/services is higher than the supply of those goods/services

Deflation

A decrease in the general price level.

Disinflation

A reduction in the rate of inflation; prices continue to rise but at a slower rate.

Hyperinflation

An extremely high rate of inflation (greater than 50% per month).

Fisher equation

The nominal interest rate is approximately equal to the real interest rate plus the expected rate of inflation.

Shoeleather costs

Resources wasted when inflation encourages people to reduce cash holding and make more frequent bank transactions instead.

The inflation tax

The reduction in real value of currency that occurs from the increase in price level (basically inflation can act like a tax on everyone who holds currency)

Menu costs

The costs of changing prices (reprinting menus, or labels) due to inflation.

Relative price variability

Inflation can distort relative prices and make it difficult for consumers to compare quality and prices of various goods and services.

Wage-price spiral

Rising wages lead to increased production costs, causing prices to rise for consumers, so workers will demand higher wages….