# inflation

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noun in·fla·tion \in-ˈflā-shən\
Updated on: 26 Jul 2017

## Definition of inflation

1. 1 :  an act of inflating :  a state of being inflated: such asb :  a hypothetical extremely brief period of very rapid expansion of the universe immediately following the big bangc :  empty pretentiousness :  pomposity

2. 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

## Examples of inflation in a Sentence

1. the inflation of a balloon

2. The government has been unable to control inflation.

3. The rate of inflation is high.

## Recent Examples of inflation from the Web

• That combination of slowing credit, quickening growth and rising inflation has already had a notable effect on China’s debt ratios.
• Japan’s central bank, likewise, is not expected to make any drastic moves, given recent subdued data on inflation and consumer sentiment.
• Proponents of an increase say the revenue from Alabama's 18-cents-per-gallon gas tax has not kept pace with the cost inflation of road maintenance and construction.
• Worryingly for policy makers, falling inflation can foretell slowing growth and demand.
• The Fed’s preferred measure of inflation is tracking at 1.4 percent over the past 12 months.
• However, the Washington Post reported the increase in literal dollars budgeted does not account for rising costs, population growth, inflation and the shrinking number of Americans actually eligible for Medicaid coverage.

## 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}.

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noun

## Definition of inflation for English Language Learners

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

• : a continual increase in the price of goods and services

## inflation

play
noun in·fla·tion \in-ˈflā-shən\

## Definition of inflation for Students

1. 1 :  an act of filling with air or gas :  the state of being filled with air or gas inflation of a balloon

2. 2 :  a continual rise in the price of goods and services

## Seen and Heard

What made you want to look up inflation? Please tell us where you read or heard it (including the quote, if possible).

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