Home › Finance › Inflation & Cost of Living › Inflation

Inflation

in-FLAY-shun /ɪnˈfleɪʃən/

nounC1GRESATTOEFLIELTS

formalbusiness

A general increase in prices and fall in the purchasing value of money.

Inflation is a sustained rise in the general price level of goods and services in an economy over a period of time. It means that a unit of currency effectively buys less than it did in prior periods.

The story behind the word. The word 'inflation' comes from the Latin 'inflare,' meaning 'to blow into' or 'to swell.' In the 14th century, it literally referred to the act of blowing something up, like a balloon. It wasn't until the mid-19th century that economists began using 'inflation' to describe the 'blowing up' or 'swelling' of prices in an economy, making money worth less.

Word relationships

price increase: More general, can refer to a single item or temporary rise, whereas 'inflation' implies a broader, sustained trend.
cost of living increase: Focuses on the impact on household expenses, while 'inflation' is a broader economic measure.

Deflation: The opposite: a general decrease in prices.

Commonly confused with

Cost of living: Inflation is the economic phenomenon causing prices to rise; cost of living is the actual expense of maintaining a certain standard of living, which is affected by inflation.

Word family

inflate (verb): To cause to expand with air or gas; to cause prices to rise.
inflationary (adjective): Relating to or tending to cause inflation.

Collocations

high inflation
low inflation
rampant inflation
inflation rate
combat inflation
inflationary pressures

Example sentences

"The central bank's primary goal is to keep inflation at a manageable level to ensure economic stability." Discussing economic challenges.
"Rising energy costs contributed significantly to the unexpected surge in inflation last quarter." From a financial report.
"In the 1970s, the United States experienced high inflation coupled with slow economic growth." Historical economic analysis.

Memory hook

Think of a balloon IN-FLATING, getting bigger and bigger. As prices INFLATE, they get bigger and bigger too. Ballooning prices

When not to use

Do not use 'inflation' to describe a single price increase or a temporary fluctuation. It refers to a sustained, general trend across the economy.

Fun facts

The term 'inflation' was first used in an economic sense during the American Civil War, referring to the expansion of paper currency.