Inflation

Definition of 'Inflation'

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.



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Inflation is when the prices of most goods and services continue to creep upward. It is measured by the Consumer Price Index

Inflation is usually a result of overheated economic growth, sometimes caused by irrational exuberance. It is also caused by a glut of capital in the market chasing too few opportunities. This happens when there is too much liquidity, which is excess dollars or credit.

Price inflation usually leads to wage inflation, so that companies can retain good workers. Unfortunately, the wages creep up more slowly than do the prices, because companies are reluctant to increase these fixed costs. Higher prices combined with stagnant wages means your standard of living can actually decrease. This contributed to increasing income inequality in the U.S.

Economics . a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency

Definition of 'Phillips Curve'

An economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. According to the Phillips curve, the lower an economy's rate of unemployment, the more rapidly wages paid to labor increase in that economy.

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The theory states that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.

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