Inflation is an increase in money supply, excluding the increase caused by
economic growth. This may cause a persistent rise in the general price level
as measured against a standard level of purchasing power. There are many
varying measures of inflation in use because different prices affect
different people. The most widely known indices are the Consumer Price Index
(CPI) which measures the change in nominal consumer prices and the GDP
deflator which measures inflation in new products and services created.
Mainstream economists' views of the causes of inflation can be broadly
divided into two camps: the "monetarists" who believe that monetary effects
dominate all others in setting the rate of inflation, and the "Keynesians"
who believe that the interaction of money, interest and output dominate over
other effects. Keynesians also tend to add a capital goods (or asset) price
inflation to the standard measure of consumption goods inflation. Other
theories, such as those of the Austrian school of economics, believe that
inflation is caused by an increase in the supply of money by central banking
authorities (Monetary inflation).
Related concepts include: deflation, a general falling level of prices;
disinflation, the reduction of the rate of inflation; hyper-inflation, an
out-of-control inflationary spiral; stagflation, a combination of inflation
and rising unemployment; and reflation, which is an attempt to raise prices
to counteract deflationary pressures.
In classical political economy, “inflation” means increasing the money
supply, while “deflation” means decreasing it. The purpose of this increase
in money supply is to accommodate any increase in real GDP. Some economists
in a few schools of economic thought still retain this usage. In mainstream
economic terms these would be referred to as expansionary and contractionary
monetary policies.
From: Wikipedia
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INFLATION