inflation

Inflation is a rate of a sustained increase in prices for goods and services.

When the price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time.

Inflation has both positive and negative effects on an economy.

Increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings are considered negative effects. If inflation were rapid enough, shortages of goods happen as consumers begin hoarding out of a fear that prices will increase in the future.

Positive effects include ensuring that central banks can adjust real interest rates (to mitigate recessions), and encouraging investment in non-monetary capital projects.

Deflation, stagflation and hyperinflation are considered variables on inflation. Deflation is a decrease in prices, the opposite of inflation; stagflation is the combination of high unemployment and economic stagnation with inflation; and hyperinflation is an extremely rapid inflation.