Inflation
Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power of money – a loss of real value in the medium of exchange and unit of account within an economy. A related concept is cost-push inflation, which occurs when an increase in the cost of production leads to a higher general price level.
There are several measures of inflation.
In the United Kingdom, the Office for National Statistics (ONS) publishes the consumer price index (CPI) as a measure of inflation. The CPI measures the average change in prices of a basket of goods and services consumed by households in the UK.
In the United States, the Bureau of Labor Statistics (BLS) publishes the consumer price index for all urban consumers (CPI-U) as a measure of inflation. The CPI-U measures the average change in prices of a basket of goods and services consumed by urban households in the US.
In Australia, the Australian Bureau of Statistics (ABS) publishes the consumer price index (CPI) as a measure of inflation. The CPI measures the average change in prices of a basket of goods and services consumed by households in Australia.
These measures of inflation are used to track changes in the general price level of goods and services in each country over time, and are often used to adjust for inflation in contracts, wages, and other economic indicators.
Inflation can have both positive and negative effects on an economy. On the positive side, low and stable levels of inflation can encourage economic growth and investment, because it allows businesses to plan for the future and make long-term investments with confidence. On the negative side, high levels of inflation can discourage economic growth and investment, because it reduces the purchasing power of money and makes it more difficult for businesses to predict future costs and revenues.