inflation

noun
in·​fla·​tion | \ in-ˈflā-shən \

Definition of inflation 

1 : an act of inflating : a state of being inflated: such as
b : a hypothetical extremely brief period of very rapid expansion of the universe immediately following the big bang
c : empty pretentiousness : pomposity
2 : a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

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Examples of inflation in a Sentence

the inflation of a balloon The government has been unable to control inflation. The rate of inflation is high.
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Recent Examples on the Web

While higher oil prices can lead to higher inflation, pushing the Fed to move faster with its rate increases, weak commodities markets can do the opposite. Akane Otani, WSJ, "Investors Turn Focus to Fed’s 2019 Rate Path," 15 Dec. 2018 Cheap money is great, except too much cheap money can lead to inflation, so to head that off at the pass, central banks sometimes raise interest rates to slow spending and keep things calm. Matthew Yglesias, Vox, "Trump keeps complaining about the Fed while appointing people who don’t agree with his complaints," 12 Dec. 2018 Pensions and family and housing benefits would no longer be pegged to inflation. Sylvie Corbet, The Seattle Times, "France’s Macron encounters obstacle course at home," 4 Sep. 2018 Higher barriers to trade will add to inflation and hurt GDP, but to an extent that is hard to fathom. The Economist, "Even stockmarket bulls are more cautious than at the start of the year," 12 July 2018 One of the problems the central bank faces is figuring out how much risk is posed to inflation by a powerful dose of fiscal stimulus signed by Trump that's cut taxes by $1.5 trillion and lifted federal spending by $300 billion. Alister Bull, chicagotribune.com, "Trump economic adviser Kudlow bucks tradition in urging Fed to hike rates 'very slowly'," 29 June 2018 Turkey’s economy is in bad shape and getting worse: inflation is high, and its currency remains unsteady. Ian Bremmer, Time, "Why Turkish President Erdogan Is Not as All-Powerful as He Seems," 28 June 2018 That income level would be tied to inflation, so the extra tax would continue to apply only to very wealthy people. Joshua Miller, BostonGlobe.com, "Lawmakers are looking at their own millionaires’ tax, but it’s going to take a while," 22 June 2018 Part of the uptick in inflation this year is a product of rising oil prices, a phenomenon over which the American president has little control. Eric Levitz, Daily Intelligencer, "Most Americans’ Wages Have Actually Declined Over the Past Year," 13 June 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'inflation.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of inflation

14th century, in the meaning defined at sense 1

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Statistics for inflation

Last Updated

6 Jan 2019

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The first known use of inflation was in the 14th century

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More Definitions for inflation

inflation

noun

Financial Definition of inflation

What It Is

Inflation is the rate at which prices rise and purchasing power falls. It is why something that cost $1 in 1980 cost $2.37 in 2005.

How It Works

Two general theories explain inflation. The first, the demand-pull theory, says that prices increase when demand for goods and services exceeds their supply. The second, the cost-push theory, says that companies create inflation when they raise their prices to cover higher supply prices and maintain profit margins.

The Bureau of Labor Statistics (BLS) calculates and publishes the Consumer Price Index(CPI), which is the most recognized inflation measure in the United States, each month. The CPI measures the change in the retail prices of approximately 80,000 specific goods and services, called the market basket. An example of a specific good could be a 4.4-pound bag of "extra-fancy" grade Golden Delicious apples. The goods and services fall into eight major categories: food and beverage, housing, apparel, transportation, medical care, recreation, education and communication, and other. The BLS updates the market basket every few years to remove obsolete items; the last update occurred during 2001 and 2002.

The BLS calculates the CPI by comparing the cost of the market basket to the same basket in the starting year (usually 1982-1984). To do this, the BLS sets the average price of the market basket during the years 1982, 1983, and 1984 to equal 100. Then in every subsequent period, the BLS calculates price changes in relation to that number. A CPI of 120, for example, means that prices are 20% higher than they were in the base period.

There is more than one CPI measure. The most common, the Consumer Price Index for All Urban Consumers (CPI-U), measures prices in urban areas, where much of the American population resides. The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) and the CPI for Urban Wage Earners and Clerical Workers (CPI-W), also measure inflation, but do so using different assumptions (in the case of the C-CPI-U, it accounts for certain consumer behaviors such as substituting items) or only with certain types of households.

Just as there is more than one CPI measurement, there are several different measurements for inflation. TheThe definition of inflation on InvestingAnswersProducer Price Index (PPI), for example, is a popular inflation measure that measures the average change in wholesale prices. PPI often increases before CPI, and this is somewhat of a leading inflation indicator. Other measures include the Employment Cost Index(Employment Cost Index), which measures inflation in the labor market; the BLS International Price Program, which measures inflation in import and export prices; and the Gross Domestic Product Deflator (GDP Deflator), which combines prices to consumers, producers, and the government.

Inflation has a significant effect on investment returns and decisions. For example, let's assume that you invest $1,000 in a one-year XYZ Company bond. If the bond yields 5%, then at the end of the year you will collect $1,050. Your 5% return may not be as good as it looks if the inflation rate was 4% during the year. Your real return is actually 1%. Some securities, such as Treasury Inflation-Protected Securities (TIPS), tie their principal and coupon payments to the CPI in order to compensate the investor for inflation. The Chicago Mercantile Exchange also trades futures contracts on the CPI. These can be used to hedge inflation, and they indicate the market's opinion about future prices.

Why It Matters

Inflation's fundamental relationship with supply and demand means that inflation directly or indirectly affects nearly every financial decision, from consumer choices to lending rates, and from asset allocation to stock prices. The inflation rate also offers important clues about the state of an economy. Most economists agree that moderate inflation is a sign of a growing economy and that deflation is a sign of stagnation.

When inflation is high, overall prices are rising within the economy. In this type of environment, businesses generally have little trouble raising prices to their customers. What's more, there's a certain momentum to inflation data; when consumers see inflation they usually expect prices to rise. That makes it easier for businesses to justify price hikes. However, when inflation is fairly low, it makes it extremely difficult for most companies to raise prices for goods and services. Furthermore, inflation can influence the following areas:

Corporate Performance
Inflation can distort a company's financial performance. For example, a company that reports high revenue growth during a period of rising inflation could be misleading shareholders if those revenues were the result of inflationary pressure rather than managerial skill. For this reason, many analysts use inflation information to "deflate" or adjust certain financial measures so that they can compare them accurately over time. Inflation can also influence a company's choices in accounting methods.

Securities Analysis
Although all of the factors above can affect a company's stock price, perhaps the largest effect inflation has on securities is found in the discount rate. When inflation is high or rising, the future dividends or interest payments from an investment are worth less. In broad terms, the higher inflation goes, the higher the discount rate goes, and the lower the value of the security goes. The reverse is also true.

Monetary Policy
Because the Federal Reserve's job is to maintain long-term economic prosperity through the execution of monetary policy, it takes a keen interest in inflation rates when deciding whether to raise or lower the buyout. This is one reason some analysts consider inflation a measure of the effectiveness of certain government policies.

Contracts and Obligations
Contracts and other obligations involving payments over time often consider inflation. For example, many labor contracts tie wage adjustments to changes in the CPI, as do some alimony, child support, rent, royalty, and other obligations affected by changes in purchasing power. People living off fixed incomes are particularly affected by inflation, and this is why the government usually adjusts Social Security checks and food stamps, as well as the wages of federal employees and members of the military on a regular basis.

For more information about the Bureau of Labor Statistics inflation measures, visit {ia_ext|www.bls.gov/cpi|http://www.bls.gov/cpi}.

Source: Investing Answers

inflation

noun

English Language Learners Definition of inflation

: an act of inflating something : the state of being inflated

: a continual increase in the price of goods and services

inflation

noun
in·​fla·​tion | \ in-ˈflā-shən \

Kids Definition of inflation

1 : an act of filling with air or gas : the state of being filled with air or gas inflation of a balloon
2 : a continual rise in the price of goods and services

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