What is Inflation? Meaning
Inflation refers to a continuous rise in general price level which reduces the value of money or purchasing power over a period of time.
Statistically speaking, inflation is measured in terms of a percentage rise in the price index (i.e. percentage rate per unit time) usually for an annum (a year) or for 30-31 days (a month).
Definition of Inflation
According to Crowther,
"Inflation is a state in which the value of money is failing i.e. the prices are rising."
According to Coulbourn,
"Inflation is too much of money chasing too few goods."
Features of Inflation
The characteristics or features of inflation are as follows :-
- Inflation involves a process of the persistent rise in prices. It involves rising trend in price level.
- Inflation is a state of disequilibrium.
- Inflation is scarcity oriented.
- Inflation is dynamic in nature.
- Inflationary price rise is persistent and irreversible.
- Inflation is caused by excess demand in relation to supply of all types of goods and services.
- Inflation is a purely monetary phenomenon.
- Inflation is a post full employment phenomenon.
- Inflation is a long-term process.
Terms Related to Inflation
The important terms related to inflation are as follows :-
- Deflation : Deflation is a condition of falling prices. It is just the opposite of inflation. In deflation, the value of money goes up and prices fall down. Deflation brings a depression phase of business in the economy.
- Disinflation : Disinflation refers to lowering of prices through anti-inflationary measures without causing unemployment and reduction in output.
- Reflation : Reflation is a situation of rising prices intentionally adopted to ease the depression phase of the economy. In reflation, along with rising prices, the employment, output and income also increase until the economy reaches the stage of full employment.
- Stagflation : Paul Samuelson describes Stagflation as the paradox of rising prices with increasing rate of unemployment.
- Stagnation : Stagnation in the rate of economic growth which may be a slow or no economic growth at all.
- Statflation : The term 'Statflation' was coined by Dr. P.R. Brahmananda to describe the inflationary situation of India. According to Brahmananda, Rising prices in the middle of a recession is known as Statflation.