What Is Inflation? A Clear Explanation
Inflation is the rate at which prices rise over a period of time, usually a year.
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In this lesson you learn to
- Define inflation as a general rise in prices and a loss of purchasing power
- Work out purchasing power after inflation in an example
- Describe how inflation is measured with a basket of goods
Check yourself: sample questions
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1.How is inflation defined in the episode?
Inflation is the rate at which prices rise over a period of time, usually a year.
2.True or false: inflation measures the speed of price rises, not how high prices are.
Inflation is a rate and therefore a speed. A price level can be high while inflation is low.
3.What happens to purchasing power when prices rise faster than pay?
When incomes rise less than prices, purchasing power and real income fall.
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Sources (4)
- IMF Finance & Development, Back to Basics: Ceyda Oner, "Inflation: Prices on the Rise" (30.7.2019)
- U.S. Bureau of Labor Statistics: Consumer Price Index (Startseite CPI)
- Federal Open Market Committee: Statement on Longer-Run Goals and Monetary Policy Strategy (adopted effective 24.1.2012; reaffirmed effective 27.1.2026)
- Eigene Berechnung (synthetische Preise und Saetze)
Education only. Not financial advice.