Inflation - Wikipedia

ಹಣದುಬ್ಬರ
ಅರ್ಥಶಾಸ್ತ್ರದಲ್ಲಿ , ಹಣದುಬ್ಬರವು ಆರ್ಥಿಕತೆಯಲ್ಲಿ ಸರಕು ಮತ್ತು ಸೇವೆಗಳ ಬೆಲೆಗಳಲ್ಲಿ ಸಾಮಾನ್ಯ ಹೆಚ್ಚಳವಾಗಿದೆ .

ಇದನ್ನು ಸಾಮಾನ್ಯವಾಗಿ ಗ್ರಾಹಕ ಬೆಲೆ ಸೂಚ್ಯಂಕ (CPI) ಬಳಸಿ ಅಳೆಯಲಾಗುತ್ತದೆ. [3] [4] [5] [6] ಸಾಮಾನ್ಯ ಬೆಲೆಯ
ಮಟ್ಟವು ಏರಿದಾಗ, ಕರೆನ್ಸಿಯ ಪ್ರತಿ ಘಟಕವು ಕಡಿಮೆ ಸರಕು ಮತ್ತು ಸೇವೆಗಳನ್ನು ಖರೀದಿಸುತ್ತದೆ; ಪರಿಣಾಮವಾಗಿ,
ಹಣದುಬ್ಬರವು ಹಣದ ಕೊಳ್ಳುವ ಶಕ್ತಿಯಲ್ಲಿನ ಕಡಿತಕ್ಕೆ ಅನುರೂಪವಾಗಿದೆ . [7] [8] CPI ಹಣದುಬ್ಬರಕ್ಕೆ ವಿರುದ್ಧವಾದ
ಹಣದುಬ್ಬರವಿಳಿತವು ಸರಕು ಮತ್ತು ಸೇವೆಗಳ ಸಾಮಾನ್ಯ ಬೆಲೆ ಮಟ್ಟದಲ್ಲಿ ಇಳಿಕೆಯಾಗಿದೆ. ಹಣದುಬ್ಬರದ ಸಾಮಾನ್ಯ
ಅಳತೆಯು ಹಣದುಬ್ಬರ ದರವಾಗಿದೆ , ಸಾಮಾನ್ಯ ಬೆಲೆ ಸೂಚ್ಯಂಕದಲ್ಲಿನ ವಾರ್ಷಿಕ ಶೇಕಡಾವಾರು
ಬದಲಾವಣೆಯಾಗಿದೆ . [9] ಕುಟುಂಬಗಳು ಎದುರಿಸುತ್ತಿರುವ ಬೆಲೆಗಳು ಒಂದೇ ದರದಲ್ಲಿ ಹೆಚ್ಚಾಗುವುದಿಲ್ಲವಾದ್ದರಿಂದ, ಈ
ಉದ್ದೇಶಕ್ಕಾಗಿ ಗ್ರಾಹಕ ಬೆಲೆ ಸೂಚ್ಯಂಕವನ್ನು (CPI) ಹೆಚ್ಚಾಗಿ ಬಳಸಲಾಗುತ್ತದೆ.
ಅಕ್ಟೋಬರ್ 2023 ರಲ್ಲಿ ಅಂತರರಾಷ್ಟ್ರೀಯ ಹಣಕಾಸು ನಿಧಿಯ ಸದಸ್ಯರ ನಡುವಿನ

ಹಣದುಬ್ಬರ ದರಗಳು
ಜನವರಿ 1989 ರಿಂದ ಯುಕೆ ಮತ್ತು ಯುಎಸ್ ಮಾಸಿಕ ಹಣದುಬ್ಬರ ದರಗಳು [1] [2]
ಹಣದುಬ್ಬರದಲ್ಲಿನ ಬದಲಾವಣೆಗಳು ಸರಕು ಮತ್ತು ಸೇವೆಗಳ ನೈಜ ಬೇಡಿಕೆಯಲ್ಲಿನ ಏರಿಳಿತಗಳಿಗೆ ವ್ಯಾಪಕವಾಗಿ

ಕಾರಣವಾಗಿವೆ ( ಹಣಕಾಸು ಅಥವಾ ವಿತ್ತೀಯ ನೀತಿಯಲ್ಲಿನ ಬದಲಾವಣೆಗಳನ್ನು ಒಳಗೊಂಡಂತೆ ಬೇಡಿಕೆ ಆಘಾತಗಳು
ಎಂದೂ ಕರೆಯುತ್ತಾರೆ), ಇಂಧನ ಬಿಕ್ಕಟ್ಟಿನ ಸಮಯದಲ್ಲಿ ಲಭ್ಯವಿರುವ ಪೂರೈಕೆಗಳಲ್ಲಿನ ಬದಲಾವಣೆಗಳು ( ಪೂರೈಕೆ
ಆಘಾತಗಳು ಎಂದೂ ಕರೆಯುತ್ತಾರೆ ) ಅಥವಾ ಬದಲಾವಣೆಗಳು ಹಣದುಬ್ಬರ ನಿರೀಕ್ಷೆಗಳಲ್ಲಿ, ಇದು ಸ್ವಯಂ-
ನೆರವೇರಿಕೆಯಾಗಿರಬಹುದು. [10] ಮಧ್ಯಮ ಹಣದುಬ್ಬರವು ಆರ್ಥಿಕತೆಯ ಮೇಲೆ ಧನಾತ್ಮಕ ಮತ್ತು ಋಣಾತ್ಮಕ
ರೀತಿಯಲ್ಲಿ ಪರಿಣಾಮ ಬೀರುತ್ತದೆ. ಋಣಾತ್ಮಕ ಪರಿಣಾಮಗಳು ಹಣವನ್ನು ಹಿಡಿದಿಟ್ಟುಕೊಳ್ಳುವ ಅವಕಾಶ ವೆಚ್ಚದಲ್ಲಿ
ಹೆಚ್ಚಳ , ಭವಿಷ್ಯದ ಹಣದುಬ್ಬರದ ಮೇಲಿನ ಅನಿಶ್ಚಿತತೆ, ಹೂಡಿಕೆ ಮತ್ತು ಉಳಿತಾಯವನ್ನು ನಿರುತ್ಸಾಹಗೊಳಿಸಬಹುದು
ಮತ್ತು ಹಣದುಬ್ಬರವು ಸಾಕಷ್ಟು ವೇಗವಾಗಿದ್ದರೆ, ಗ್ರಾಹಕರು ಬೆಲೆಗಳು ಹೆಚ್ಚಾಗುವ ಆತಂಕದಿಂದ ಸಂಗ್ರಹಣೆಯನ್ನು
ಪ್ರಾರಂಭಿಸಿದಾಗ ಸರಕುಗಳ ಕೊರತೆಯನ್ನು ಒಳಗೊಂಡಿರುತ್ತದೆ. ಭವಿಷ್ಯ. ನಾಮಮಾತ್ರದ ವೇತನದ ಕಟ್ಟುನಿಟ್ಟಿನ
ಕಾರಣದಿಂದ ನಿರುದ್ಯೋಗವನ್ನು ಕಡಿಮೆ ಮಾಡುವುದು , [11] ಕೇಂದ್ರೀಯ ಬ್ಯಾಂಕ್‌ಗೆ ವಿತ್ತೀಯ ನೀತಿಯನ್ನು ಕೈಗೊಳ್ಳುವಲ್ಲಿ
ಹೆಚ್ಚಿನ ಸ್ವಾತಂತ್ರ್ಯವನ್ನು ಅನುಮತಿಸುವುದು , ಹಣದ ಸಂಗ್ರಹಣೆಗೆ ಬದಲಾಗಿ ಸಾಲಗಳು ಮತ್ತು ಹೂಡಿಕೆಯನ್ನು
ಉತ್ತೇಜಿಸುವುದು ಮತ್ತು ಹಣದುಬ್ಬರವಿಳಿತಕ್ಕೆ ಸಂಬಂಧಿಸಿದ ಅಸಮರ್ಥತೆಗಳನ್ನು ತಪ್ಪಿಸುವುದು ಧನಾತ್ಮಕ
ಪರಿಣಾಮಗಳನ್ನು ಒಳಗೊಂಡಿದೆ.
Today, most economists favour a low and steady rate of inflation.[12] Low (as opposed to zero or
negative) inflation reduces the probability of economic recessions by enabling the labor market
to adjust more quickly in a downturn and reduces the risk that a liquidity trap prevents monetary
policy from stabilizing the economy while avoiding the costs associated with high inflation.[13]
The task of keeping the rate of inflation low and stable is usually given to central banks that
control monetary policy, normally through the setting of interest rates and by carrying out open
market operations.[10]
Terminology
The term originates from the Latin inflare (to blow into or inflate). Conceptually, inflation refers to
the general trend of prices, not changes in any specific price. For example, if people choose to
buy more cucumbers than tomatoes, cucumbers consequently become more expensive and
tomatoes less expensive. These changes are not related to inflation; they reflect a shift in tastes.
Inflation is related to the value of currency itself. When currency was linked with gold, if new gold
deposits were found, the price of gold and the value of currency would fall, and consequently,
prices of all other goods would become higher.[14]
Classical economics
By the nineteenth century, economists categorised three separate factors that cause a rise or
fall in the price of goods: a change in the value or production costs of the good, a change in the
price of money which then was usually a fluctuation in the commodity price of the metallic
content in the currency, and currency depreciation resulting from an increased supply of currency
relative to the quantity of redeemable metal backing the currency. Following the proliferation of
private banknote currency printed during the American Civil War, the term "inflation" started to
appear as a direct reference to the currency depreciation that occurred as the quantity of
redeemable banknotes outstripped the quantity of metal available for their redemption. At that
time, the term inflation referred to the devaluation of the currency, and not to a rise in the price of
goods.[15] This relationship between the over-supply of banknotes and a resulting depreciation in
their value was noted by earlier classical economists such as David Hume and David Ricardo,
who would go on to examine and debate what effect a currency devaluation has on the price of
goods.[16]
Related concepts
Other economic concepts related to inflation include: deflation – a fall in the general price
level;[17] disinflation – a decrease in the rate of inflation;[18] hyperinflation – an out-of-control
inflationary spiral;[19] stagflation – a combination of inflation, slow economic growth and high
unemployment;[20] reflation – an attempt to raise the general level of prices to counteract
deflationary pressures;[21] and asset price inflation – a general rise in the prices of financial
assets without a corresponding increase in the prices of goods or services;[22] agflation – an
advanced increase in the price for food and industrial agricultural crops when compared with the
general rise in prices.[23]
More specific forms of inflation refer to sectors whose prices vary semi-independently from the
general trend. "House price inflation" applies to changes in the house price index[24] while
"energy inflation" is dominated by the costs of oil and gas.[25]
History
US historical inflation (in blue) and deflation (in green) from the mid-
17th century to the beginning of the 21st
Overview
Inflation has been a feature of history during the entire period when money has been used as a
means of payment. One of the earliest documented inflations occurred in Alexander the Great's
empire 330 BCE.[26] Historically, when commodity money was used, periods of inflation and
deflation would alternate depending on the condition of the economy. However, when large,
prolonged infusions of gold or silver into an economy occurred, this could lead to long periods of
inflation.
The adoption of fiat currency by many countries, from the 18th century onwards, made much
larger variations in the supply of money possible.[27] Rapid increases in the money supply have
taken place a number of times in countries experiencing political crises, producing
hyperinflations – episodes of extreme inflation rates much higher than those observed in earlier
periods of commodity money. The hyperinflation in the Weimar Republic of Germany is a notable
example. The hyperinflation in Venezuela is the highest in the world, with an annual inflation rate
of 833,997% as of October 2018.[28]
Historically, inflations of varying magnitudes have occurred, interspersed with corresponding

deflationary periods,[26] from the price revolution of the 16th century, which was driven by the
flood of gold and particularly silver seized and mined by the Spaniards in Latin America, to the
largest paper money inflation of all time in Hungary after World War II.[29]
However, since the 1980s, inflation has been held low and stable in countries with independent
central banks. This has led to a moderation of the business cycle and a reduction in variation in
most macroeconomic indicators – an event known as the Great Moderation.[30]
Silver purity through time in early Roman imperial silver coins.
To increase the number of silver coins in circulation while
short on silver, the Roman imperial government repeatedly
debased the coins. They melted relatively pure silver coins and
then struck new silver coins of lower purity but of nominally
equal value. Silver coins were relatively pure before Nero (AD
54–68), but by the 270s had hardly any silver left.
The silver content of Roman silver coins rapidly declined

during the Crisis of the Third Century.
Ancient Europe
Alexander the Great's conquest of the Persian Empire in 330 BCE was followed by one of the
earliest documented inflation periods in the ancient world.[26] Rapid increases in the quantity of
money or in the overall money supply have occurred in many different societies throughout
history, changing with different forms of money used.[31][32] For instance, when silver was used
as currency, the government could collect silver coins, melt them down, mix them with other,
less valuable metals such as copper or lead and reissue them at the same nominal value, a
process known as debasement. At the ascent of Nero as Roman emperor in AD 54, the denarius
contained more than 90% silver, but by the 270s hardly any silver was left. By diluting the silver
with other metals, the government could issue more coins without increasing the amount of
silver used to make them. When the cost of each coin is lowered in this way, the government
profits from an increase in seigniorage.[33] This practice would increase the money supply but at
the same time the relative value of each coin would be lowered. As the relative value of the coins
becomes lower, consumers would need to give more coins in exchange for the same goods and
services as before. These goods and services would experience a price increase as the value of
each coin is reduced.[34] Again at the end of the third century CE during the reign of Diocletian,
the Roman Empire experienced rapid inflation.[26]
Ancient China
Song dynasty China introduced the practice of printing paper money to create fiat currency.[35]
During the Mongol Yuan dynasty, the government spent a great deal of money fighting costly
wars, and reacted by printing more money, leading to inflation.[36] Fearing the inflation that
plagued the Yuan dynasty, the Ming dynasty initially rejected the use of paper money, and
reverted to using copper coins.[37]
Medieval Egypt
During the Malian king Mansa Musa's hajj to Mecca in 1324, he was reportedly accompanied by
a camel train that included thousands of people and nearly a hundred camels. When he passed
through Cairo, he spent or gave away so much gold that it depressed its price in Egypt for over a
decade,[38] reducing its purchasing power. A contemporary Arab historian remarked about
Mansa Musa's visit:
Gold was at a high price in Egypt until they came in that year. The mithqal did not
go below 25 dirhams and was generally above, but from that time its value fell and
it cheapened in price and has remained cheap till now. The mithqal does not exceed
22 dirhams or less. This has been the state of affairs for about twelve years until
this day by reason of the large amount of gold which they brought into Egypt and
spent there [...].
— Chihab Al-Umari, Kingdom

of Mali[39]
Medieval age and "price revolution" in

Western Europe
There is no reliable evidence of inflation in Europe for the thousand years that followed the fall of
the Roman Empire, but from the Middle Ages onwards reliable data do exist. Mostly, the
medieval inflation episodes were modest, and there was a tendency that inflationary periods
were followed by deflationary periods.[26]
From the second half of the 15th century to the first half of the 17th, Western Europe
experienced a major inflationary cycle referred to as the "price revolution",[40][41] with prices on
average rising perhaps sixfold over 150 years. This is often attributed to the influx of gold and
silver from the New World into Habsburg Spain,[42] with wider availability of silver in previously
cash-starved Europe causing widespread inflation.[43][44] European population rebound from the
Black Death began before the arrival of New World metal, and may have begun a process of
inflation that New World silver compounded later in the 16th century.[45]
After 1700
A pattern of intermittent inflation and deflation periods persisted for centuries until the Great
Depression in the 1930s, which was characterized by major deflation. Since the Great
Depression, however, there has been a general tendency for prices to rise every year. In the
1970s and early 1980s, annual inflation in most industrialized countries reached two digits (ten
percent or more). The double-digit inflation era was of short duration, however, inflation by the
mid-1980s returned to more modest levels. Amid this, general trends there have been
spectacular high-inflation episodes in individual countries in interwar Europe, towards the end of
the Nationalist Chinese government in 1948–1949, and later in some Latin American countries,
in Israel, and in Zimbabwe. Some of these episodes are considered hyperinflation periods,
normally designating inflation rates that surpass 50 percent monthly.[26]
Measures
PPI is a leading indicator, CPI and PCE lag[46]

PPI
Core PPI
CPI
Core CPI
PCE
Core PCE
Given that there are many possible measures of the price level, there are many possible
measures of price inflation. Most frequently, the term "inflation" refers to a rise in a broad price
index representing the overall price level for goods and services in the economy. The consumer
price index (CPI), the personal consumption expenditures price index (PCEPI) and the GDP
deflator are some examples of broad price indices. However, "inflation" may also be used to
describe a rising price level within a narrower set of assets, goods or services within the
economy, such as commodities (including food, fuel, metals), tangible assets (such as real
estate), services (such as entertainment and health care), or labor. Although the values of capital
assets are often casually said to "inflate," this should not be confused with inflation as a defined
term; a more accurate description for an increase in the value of a capital asset is appreciation.
The FBI (CCI), the producer price index, and employment cost index (ECI) are examples of
narrow price indices used to measure price inflation in particular sectors of the economy. Core
inflation is a measure of inflation for a subset of consumer prices that excludes food and energy
prices, which rise and fall more than other prices in the short term. The Federal Reserve Board
pays particular attention to the core inflation rate to get a better estimate of long-term future
inflation trends overall.[47]
The inflation rate is most widely calculated by determining the movement or change in a price
index, typically the consumer price index.[48]
The inflation rate is the percentage change of a price index over time. The Retail Prices Index is
also a measure of inflation that is commonly used in the United Kingdom. It is broader than the
CPI and contains a larger basket of goods and services.
The RPI is indicative of the experiences of a wide range of household types, particularly low-
income households.[49]
To illustrate the method of calculation, in January 2007, the U.S. Consumer Price Index was
202.416, and in January 2008 it was 211.080. The formula for calculating the annual percentage
rate inflation in the CPI over the course of the year is:
The resulting inflation rate for the CPI in this one-year period is 4.28%, meaning the general level
of prices for typical U.S. consumers rose by approximately four percent in 2007.[50]
Other widely used price indices for calculating price inflation include the following:
Producer price indices (PPIs) which

measures average changes in prices
received by domestic producers for their
output. This differs from the CPI in that
price subsidization, profits, and taxes
may cause the amount received by the
producer to differ from what the
consumer paid. There is also typically a
delay between an increase in the PPI
and any eventual increase in the CPI.
Producer price index measures the
pressure being put on producers by the
costs of their raw materials. This could
be "passed on" to consumers, or it could
be absorbed by profits, or offset by
increasing productivity. In India and the
United States, an earlier version of the
PPI was called the Wholesale price
index.
Commodity price indices, which
measure the price of a selection of
commodities. In the present commodity
price indices are weighted by the relative
importance of the components to the
"all in" cost of an employee.
Core price indices: because food and oil
prices can change quickly due to
changes in supply and demand
conditions in the food and oil markets, it
can be difficult to detect the long run
trend in price levels when those prices
are included. Therefore, most statistical
agencies also report a measure of 'core
inflation', which removes the most
volatile components (such as food and
oil) from a broad price index like the CPI.
Because core inflation is less affected
by short run supply and demand
conditions in specific markets, central
banks rely on it to better measure the
inflationary effect of current monetary
policy.
Other common measures of inflation are:
GDP deflator is a measure of the price

of all the goods and services included in
gross domestic product (GDP). The US
Commerce Department publishes a
deflator series for US GDP, defined as its
nominal GDP measure divided by its real
GDP measure.
∴
Regional inflation The Bureau of Labor

Statistics breaks down CPI-U
calculations down to different regions of
the US.
Historical inflation Before collecting
consistent econometric data became
standard for governments, and for the
purpose of comparing absolute, rather
than relative standards of living, various
economists have calculated imputed
inflation figures. Most inflation data
before the early 20th century is imputed
based on the known costs of goods,
rather than compiled at the time. It is
also used to adjust for the differences in
real standard of living for the presence
of technology.
Asset price inflation is an undue
increase in the prices of real assets,
such as real estate.
Issues in measuring
Measuring inflation in an economy requires objective means of differentiating changes in
nominal prices on a common set of goods and services, and distinguishing them from those
price shifts resulting from changes in value such as volume, quality, or performance. For
example, if the price of a can of corn changes from $0.90 to $1.00 over the course of a year, with
no change in quality, then this price difference represents inflation. This single price change
would not, however, represent general inflation in an overall economy. Overall inflation is
measured as the price change of a large "basket" of representative goods and services. This is
the purpose of a price index, which is the combined price of a "basket" of many goods and
services. The combined price is the sum of the weighted prices of items in the "basket". A
weighted price is calculated by multiplying the unit price of an item by the number of that item
the average consumer purchases. Weighted pricing is necessary to measure the effect of
individual unit price changes on the economy's overall inflation. The consumer price index, for
example, uses data collected by surveying households to determine what proportion of the
typical consumer's overall spending is spent on specific goods and services, and weights the
average prices of those items accordingly. Those weighted average prices are combined to
calculate the overall price. To better relate price changes over time, indexes typically choose a
"base year" price and assign it a value of 100. Index prices in subsequent years are then
expressed in relation to the base year price.[51] While comparing inflation measures for various
periods one has to take into consideration the base effect as well.
Inflation measures are often modified over time, either for the relative weight of goods in the
basket, or in the way in which goods and services from the present are compared with goods
and services from the past. Basket weights are updated regularly, usually every year, to adapt to
changes in consumer behavior. Sudden changes in consumer behavior can still introduce a
weighting bias in inflation measurement. For example, during the COVID-19 pandemic it has
been shown that the basket of goods and services was no longer representative of consumption
during the crisis, as numerous goods and services could no longer be consumed due to
government containment measures ("lock-downs").[52][53]
Over time, adjustments are also made to the type of goods and services selected to reflect
changes in the sorts of goods and services purchased by 'typical consumers'. New products
may be introduced, older products disappear, the quality of existing products may change, and
consumer preferences can shift. Both the sorts of goods and services which are included in the
"basket" and the weighted price used in inflation measures will be changed over time to keep
pace with the changing marketplace. Different segments of the population may naturally
consume different "baskets" of goods and services and may even experience different inflation
rates. It is argued that companies have put more innovation into bringing down prices for
wealthy families than for poor families.[54]
Inflation numbers are often seasonally adjusted to differentiate expected cyclical cost shifts. For
example, home heating costs are expected to rise in colder months, and seasonal adjustments
are often used when measuring inflation to compensate for cyclical energy or fuel demand
spikes. Inflation numbers may be averaged or otherwise subjected to statistical techniques to
remove statistical noise and volatility of individual prices.[55][56]
When looking at inflation, economic institutions may focus only on certain kinds of prices, or
special indices, such as the core inflation index which is used by central banks to formulate
monetary policy.[57]
Most inflation indices are calculated from weighted averages of selected price changes. This
necessarily introduces distortion, and can lead to legitimate disputes about what the true
inflation rate is. This problem can be overcome by including all available price changes in the
calculation, and then choosing the median value.[58] In some other cases, governments may
intentionally report false inflation rates; for instance, during the presidency of Cristina Kirchner
(2007–2015) the government of Argentina was criticised for manipulating economic data, such
as inflation and GDP figures, for political gain and to reduce payments on its inflation-indexed
debt.[59][60]
Inflation expectations
Inflation expectations or expected inflation is the rate of inflation that is anticipated for some
time in the foreseeable future. There are two major approaches to modeling the formation of
inflation expectations. Adaptive expectations models them as a weighted average of what was
expected one period earlier and the actual rate of inflation that most recently occurred. Rational
expectations models them as unbiased, in the sense that the expected inflation rate is not
systematically above or systematically below the inflation rate that actually occurs.
A long-standing survey of inflation expectations is the University of Michigan survey.[61]
Inflation expectations affect the economy in several ways. They are more or less built into
nominal interest rates, so that a rise (or fall) in the expected inflation rate will typically result in a
rise (or fall) in nominal interest rates, giving a smaller effect if any on real interest rates. In
addition, higher expected inflation tends to be built into the rate of wage increases, giving a
smaller effect if any on the changes in real wages. Moreover, the response of inflationary
expectations to monetary policy can influence the division of the effects of policy between
inflation and unemployment (see monetary policy credibility).
Causes
Historical approaches
Theories of the origin and causes of inflation have existed since at least the 16th century. Two
competing theories, the quantity theory of money and the real bills doctrine, appeared in various
disguises during century-long debates on recommended central bank behaviour. In the 20th
century, Keynesian, monetarist and new classical (also known as rational expectations) views on
inflation dominated post-World War II macroeconomics discussions, which were often heated
intellectual debates, until some kind of synthesis of the various theories was reached by the end
of the century.
Before 1936
The price revolution from ca. 1550–1700 caused several thinkers to present what is now
considered to be early formulations of the quantity theory of money (QTM). Other contemporary
authors attributed rising price levels to the debasement of national coinages. Later research has
shown that also growing output of Central European silver mines and an increase in the velocity
of money because of innovations in the payment technology, in particular the increased use of
bills of exchange, contributed to the price revolution.[62]
An alternative theory, the real bills doctrine (RBD), originated in the 17th and 18th century,
receiving its first authoritative exposition in Adam Smith's The Wealth of Nations.[63] It asserts
that banks should issue their money in exchange for short-term real bills of adequate value. As
long as banks only issue a dollar in exchange for assets worth at least a dollar, the issuing
bank's assets will naturally move in step with its issuance of money, and the money will hold its
value. Should the bank fail to get or maintain assets of adequate value, then the bank's money
will lose value, just as any financial security will lose value if its asset backing diminishes. The
real bills doctrine (also known as the backing theory) thus asserts that inflation results when
money outruns its issuer's assets. The quantity theory of money, in contrast, claims that inflation
results when money outruns the economy's production of goods.
During the 19th century, three different schools debated these questions: The British Currency
School upheld a quantity theory view, believing that the Bank of England's issues of bank notes
should vary one-for-one with the bank's gold reserves. In contrast to this, the British Banking
School followed the real bills doctrine, recommending that the bank's operations should be
governed by the needs of trade: Banks should be able to issue currency against bills of trading,
i.e. "real bills" that they buy from merchants. A third group, the Free Banking School, held that
competitive private banks would not overissue, even though a monopolist central bank could be
believed to do it.[64]
The debate between currency, or quantity theory, and banking schools during the 19th century
prefigures current questions about the credibility of money in the present. In the 19th century,
the banking schools had greater influence in policy in the United States and Great Britain, while
the currency schools had more influence "on the continent", that is in non-British countries,
particularly in the Latin Monetary Union and the Scandinavian Monetary Union.
During the Bullionist Controversy during the Napoleonic Wars, David Ricardo argued that the
Bank of England had engaged in over-issue of bank notes, leading to commodity price increases.
In the late 19th century, supporters of the quantity theory of money led by Irving Fisher debated
with supporters of bimetallism. Later, Knut Wicksell sought to explain price movements as the
result of real shocks rather than movements in money supply, resounding statements from the
real bills doctrine.[62]
In 2019, monetary historians Thomas M. Humphrey and Richard Timberlake published "Gold, the
Real Bills Doctrine, and the Fed: Sources of Monetary Disorder 1922–1938".[65]
Keynes and the early Keynesians

John Maynard Keynes in his 1936 main work The General Theory of Employment, Interest and
Money emphasized that wages and prices were sticky in the short run, but gradually responded
to aggregate demand shocks. These could arise from many different sources, e.g. autonomous
movements in investment or fluctuations in private wealth or interest rates.[26] Economic policy
could also affect demand, monetary policy by affecting interest rates and fiscal policy either
directly through the level of government final consumption expenditure or indirectly by changing
disposable income via tax changes.
The various sources of variations in aggregate demand will cause cycles in both output and
price levels. Initially, a demand change will primarily affect output because of the price
stickiness, but eventually prices and wages will adjust to reflect the change in demand.
Consequently, movements in real output and prices will be positively, but not strongly,
correlated.[26]
Keynes' propositions formed the basis of Keynesian economics which came to dominate
macroeconomic research and economic policy in the first decades after World War II.[10]: 526
Other Keynesian economists developed and reformed several of Keynes' ideas. Importantly,
Alban William Phillips in 1958 published indirect evidence of a negative relation between
inflation and unemployment, confirming the Keynesian emphasis on a positive correlation
between increases in real output (normally accompanied by a fall in unemployment) and rising
prices, i.e. inflation. Phillips' findings were confirmed by other empirical analyses and became
known as a Phillips curve. It quickly became central to macroeconomic thinking, apparently
offering a stable trade-off between price stability and employment. The curve was interpreted to
imply that a country could achieve low unemployment if it were willing to tolerate a higher
inflation rate or vice versa.[10]: 173
The Phillips curve model described the U.S. experience well in the 1960s, but failed to describe
the stagflation experienced in the 1970s.
Monetarism
Inflation
Deflation
M2 money supply increases Year/Year
Inflation and the growth of money supply (M2)
During the 1960s the Keynesian view of inflation and macroeconomic policy altogether were
challenged by monetarist theories, led by Milton Friedman.[10]: 528–529 Friedman famously stated
that "Inflation is always and everywhere a monetary phenomenon."[66] He revived the quantity
theory of money by Irving Fisher and others, making it into a central tenet of monetarist thinking,
arguing that the most significant factor influencing inflation or deflation is how fast the money
supply grows or shrinks.[67]
The quantity theory of money, simply stated, says that any change in the amount of money in a
system will change the price level. This theory begins with the equation of exchange:
where
is the nominal quantity of money;

is the velocity of money in final
expenditures;
is the general price level;
is an index of the real value of final
expenditures.
In this formula, the general price level is related to the level of real economic activity (Q), the
quantity of money (M) and the velocity of money (V). The formula itself is simply an
uncontroversial accounting identity because the velocity of money (V) is defined residually from
the equation to be the ratio of final nominal expenditure ( ) to the quantity of money
(M).[68]: 99
Monetarists assumed additionally that the velocity of money is unaffected by monetary policy
(at least in the long run), that the real value of output is also exogenous in the long run, its long-
run value being determined independently by the productive capacity of the economy, and that
money supply is exogenous and can be controlled by the monetary authorities. Under these
assumptions, the primary driver of the change in the general price level is changes in the
quantity of money.[68] Consequently, monetarists contended that monetary policy, not fiscal
policy, was the most potent instrument to influence aggregate demand, real output and
eventually inflation. This was contrary to Keynesian thinking which in principle recognized a role
for monetary policy, but in practice believed that the effect from interest rate changes to the real
economy was slight, making monetary policy an ineffective instrument, preferring fiscal
policy.[10]: 528 Conversely, monetarists considered fiscal policy, or government spending and
taxation, as ineffective in controlling inflation.[67]
Friedman also took issue with the traditional Keynesian view concerning the Phillips curve. He,
together with Edmund Phelps, contended that the trade-off between inflation and unemployment
implied by the Phillips curve was only temporary, but not permanent. If politicians tried to exploit
it, it would eventually disappear because higher inflation would over time be built into the
economic expectations of households and firms.[10]: 528–529 This line of thinking led to the
concept of potential output (sometimes called the "natural gross domestic product"), a level of
GDP where the economy is stable in the sense that inflation will neither decrease nor increase.
This level may itself change over time when institutional or natural constraints change. It
corresponds to the Non-Accelerating Inflation Rate of Unemployment, NAIRU, or the "natural"
rate of unemployment (sometimes called the "structural" level of unemployment).[10] If GDP
exceeds its potential (and unemployment consequently is below the NAIRU), the theory says that
inflation will accelerate as suppliers increase their prices. If GDP falls below its potential level
(and unemployment is above the NAIRU), inflation will decelerate as suppliers attempt to fill
excess capacity, cutting prices and undermining inflation.[69]
Rational expectations theory

In the early 1970s, rational expectations theory led by economists like Robert Lucas, Thomas
Sargent and Robert Barro transformed macroeconomic thinking radically. They held that
economic actors look rationally into the future when trying to maximize their well-being, and do
not respond solely to immediate opportunity costs and pressures.[10]: 529–530 In this view, future
expectations and strategies are important for inflation as well. One implication was that agents
would anticipate the likely behaviour of central banks and base their own actions on these
expectations. A central bank having a reputation of being "soft" on inflation will generate high
inflation expectations, which again will be self-fulfilling when all agents build expectations of
future high inflation into their nominal contracts like wage agreements. On the other hand, if the
central bank has a reputation of being "tough" on inflation, then such a policy announcement will
be believed and inflationary expectations will come down rapidly, thus allowing inflation itself to
come down rapidly with minimal economic disruption. The implication is that credibility
becomes very important for central banks in fighting inflation.[10]: 467–469
New Keynesians
Events during the 1970s proved Milton Friedman and other critics of the traditional Phillips curve
right: The relation between the inflation rate and the unemployment rate broke down. Eventually,
a consensus was established that the break-down was due to agents changing their inflation
expectations, confirming Friedman's theory. As a consequence, the notion of a natural rate of
unemployment (alternatively called the structural rate of unemployment) was accepted by most
economists, meaning that there is a specific level of unemployment that is compatible with
stable inflation. Stabilization policy must therefore try to steer economic activity so that the
actual unemployment rate converges towards that level.[10]: 176–189 The trade-off between the
unemployment rate and inflation implied by Phillips thus holds in the short term, but not in the
long term.[70] Also the oil crises of the 1970s causing at the same time rising unemployment and
rising inflation (i.e. stagflation) led to a broad recognition by economists that supply shocks
could independently affect inflation.[26][10]: 529
During the 1980s a group of researchers named new Keynesians emerged who accepted many
originally non-Keynesian concepts like the importance of monetary policy, the existence of a
natural level of unemployment and the incorporation of rational expectations formation as a
reasonable benchmark. At the same time they believed, like Keynes did, that various market
imperfections in different markets like labour markets and financial markets were also important
to study to understand both inflation generation and business cycles.[10]: 533–534 During the
1980s and 1990s, there were often heated intellectual debates between new Keynesians and
new classicals, but by the 2000s, a synthesis gradually emerged. The result has been called the
new Keynesian model,[10]: 535 the "new neoclassical synthesis"[71][72] or simply the "new
consensus" model.[71]
Current consensus
The current post-2000 consensus view on inflation causes can be illustrated by a modern
Phillips curve including a role for supply shocks and inflation expectations beside the original
role of aggregate demand (determining employment and unemployment fluctuations) in
influencing the inflation rate.[10] Consequently, demand shocks, supply shocks and inflation
expectations are all potentially important determinants of inflation,[73] confirming the basis of
the older triangle model by Robert J. Gordon.[74]
Demand shocks may both decrease and

increase inflation. So-called demand-pull
inflation may be caused by increases in
aggregate demand due to increased
private and government spending,[75][76]
etc. Conversely, negative demand
shocks may be caused by
contractionary economic policy.
Supply shocks may also lead to both
higher or lower inflation, depending on
the character of the shock. Cost-push
inflation is caused by a drop in
aggregate supply (potential output).
This may be due to natural disasters,
war or increased prices of inputs. For
example, a sudden decrease in the
supply of oil, leading to increased oil
prices, can cause cost-push inflation.
Producers for whom oil is a part of their
costs could then pass this on to
consumers in the form of increased
prices.[77]
Inflation expectations play a major role in
forming actual inflation. High inflation
can prompt employees to demand rapid
wage increases to keep up with
consumer prices. In this way, rising
wages in turn can help fuel inflation as
firms pass these higher labor costs on
to their customers as higher prices,
leading to a feedback loop. In the case
of collective bargaining, wage growth
may be set as a function of inflationary
expectations, which will be higher when
inflation is high. This can cause a wage-
price spiral. In a sense, inflation begets
further inflationary expectations, which
beget further (built-in) inflation.[77]
The important role of rational expectations is recognized by the emphasis on credibility on the
part of central banks and other policy-makers.[71] The monetarist assertion that monetary policy
alone could successfully control inflation formed part of the new consensus which recognized
that both monetary and fiscal policy are important tools for influencing aggregate
demand.[71][10]: 528 Indeed, monetary policy is under normal circumstances considered to be the
preferable instrument to contain inflation.[73][10] At the same time, most central banks have
abandoned trying to target money growth as originally advocated by the monetarists. Instead,
most central banks in developed countries focus on adjusting interest rates to achieve an
explicit inflation target.[78][10]: 505–509 The reason for central bank reluctance in following money
growth targets is that the money stock measures that central banks can control tightly, e.g. the
monetary base, are not very closely linked to aggregate demand, whereas conversely money
supply measures like M2, which are in some cases more closely correlated with aggregate
demand, are difficult to control for the central bank. Also, in many countries the relationship
between aggregate demand and all money stock measures have broken down in recent
decades, weakening further the case for monetary policy rules focusing on the money
supply.[78]: 608
However, while more disputed in the 1970s, surveys of members of the American Economics
Association (AEA) since the 1990s have shown that most professional American economists
generally agree with the statement "Inflation is caused primarily by too much growth in the
money supply", while the same surveys have shown a lack of consensus by AEA members since
the 1990s that "In the short run, a reduction in unemployment causes the rate of inflation to
increase" has developed despite more agreement with the statement in the 1970s.[list 1]
2021–2023 inflation surge
U.S. corporate profits as a proportion of GDP (blue) and year-over-year

change in the Consumer Price Index (red) 2017–2022
In 2021–2023, most countries experienced a considerable increase in inflation, culminating

some time in 2022. The annual inflation rate for the United States was 3.7% for the 12 months
ended September, according to U.S. Labor Department data published on Oct. 12, 2023. This
was the same as the 3.7% in the previous period. The causes are believed to be a mixture of
demand and supply shocks, whereas inflation expectations generally seem to remain anchored
(as per May 2023).[84] Possible causes on the demand side include expansionary fiscal and
monetary policy in the wake of the global COVID-19 pandemic, whereas supply shocks include
supply chain problems also caused by the pandemic[84] and exacerbated by energy price rises
following the Russian invasion of Ukraine in 2022.
US prices of crude oil and gasoline in February and March, 2022

Price gouging has also been mentioned as a possible cause: Price inelasticity can contribute to
inflation when firms consolidate, tending to support monopoly or monopsony conditions
anywhere along the supply chain for goods or services. When this occurs, firms can provide
greater shareholder value by taking a larger proportion of profits than by investing in providing
greater volumes of their outputs.[85][86] Examples include the rise in gasoline and other fossil fuel
prices in the first quarter of 2022. Shortly after initial energy price shocks caused by the Russian
invasion of Ukraine had subsided, oil companies found that supply chain constrictions, already
exacerbated by the ongoing global pandemic, supported price inelasticity, i.e., they began
lowering prices to match the price of oil when it fell much more slowly than they had increased
their prices when costs rose.[87]
Heterodox views
Additionally, there are theories about inflation accepted by economists outside of the
mainstream. The Austrian School stresses that inflation is not uniform over all assets, goods,
and services. Inflation depends on differences in markets and on where newly created money
and credit enter the economy. Ludwig von Mises said that inflation should refer to an increase in
the quantity of money, that is not offset by a corresponding increase in the need for money, and
that price inflation will necessarily follow, always leaving a poorer[88] nation.[89][90]
Effects of inflation
General effect
Restaurant increasing prices by $1.00 due to

inflation
Inflation is the decrease in the purchasing power of a currency. That is, when the general level of
prices rise, each monetary unit can buy fewer goods and services in aggregate. The effect of
inflation differs on different sectors of the economy, with some sectors being adversely affected
while others benefitting. For example, with inflation, those segments in society which own
physical assets, such as property, stock etc., benefit from the price/value of their holdings going
up, when those who seek to acquire them will need to pay more for them. Their ability to do so
will depend on the degree to which their income is fixed. For example, increases in payments to
workers and pensioners often lag behind inflation, and for some people income is fixed. Also,
individuals or institutions with cash assets will experience a decline in the purchasing power of
the cash. Increases in the price level (inflation) erode the real value of money (the functional
currency) and other items with an underlying monetary nature.
Debtors who have debts with a fixed nominal rate of interest will see a reduction in the "real"
interest rate as the inflation rate rises. The real interest on a loan is the nominal rate minus the
inflation rate. The formula R = N-I approximates the correct answer as long as both the nominal
interest rate and the inflation rate are small. The correct equation is r = n/i where r, n and i are
expressed as ratios (e.g. 1.2 for +20%, 0.8 for −20%). As an example, when the inflation rate is
3%, a loan with a nominal interest rate of 5% would have a real interest rate of approximately 2%
(in fact, it's 1.94%). Any unexpected increase in the inflation rate would decrease the real interest
rate. Banks and other lenders adjust for this inflation risk either by including an inflation risk
premium to fixed interest rate loans, or lending at an adjustable rate.
Negative
High or unpredictable inflation rates are regarded as harmful to an overall economy. They add
inefficiencies in the market, and make it difficult for companies to budget or plan long-term.
Inflation can act as a drag on productivity as companies are forced to shift resources away from
products and services to focus on profit and losses from currency inflation.[51] Uncertainty about
the future purchasing power of money discourages investment and saving.[91] Inflation hurts
asset prices such as stock performance in the short-run, as it erodes non-energy corporates'
profit margins and leads to central banks' policy tightening measures.[92] Inflation can also
impose hidden tax increases. For instance, inflated earnings push taxpayers into higher income
tax rates unless the tax brackets are indexed to inflation.
With high inflation, purchasing power is redistributed from those on fixed nominal incomes, such
as some pensioners whose pensions are not indexed to the price level, towards those with
variable incomes whose earnings may better keep pace with the inflation.[51] This redistribution
of purchasing power will also occur between international trading partners. Where fixed
exchange rates are imposed, higher inflation in one economy than another will cause the first
economy's exports to become more expensive and affect the balance of trade. There can also
be negative effects to trade from an increased instability in currency exchange prices caused by
unpredictable inflation.
Hoarding
People buy durable and/or non-
perishable commodities and other
goods as stores of wealth, to avoid the
losses expected from the declining
purchasing power of money, creating
shortages of the hoarded goods.
Social unrest and revolts

Inflation can lead to massive
demonstrations and revolutions. For
example, inflation and in particular food
inflation is considered one of the main
reasons that caused the 2010–2011
Tunisian revolution[93] and the 2011
Egyptian revolution,[94] according to
many observers including Robert
Zoellick,[95] president of the World Bank.
Tunisian president Zine El Abidine Ben
Ali was ousted, Egyptian President
Hosni Mubarak was also ousted after
only 18 days of demonstrations, and
protests soon spread in many countries
of North Africa and Middle East.
Hyperinflation
If inflation becomes too high, it can
cause people to severely curtail their
use of the currency, leading to an
acceleration in the inflation rate. High
and accelerating inflation grossly
interferes with the normal workings of
the economy, hurting its ability to supply
goods. Hyperinflation can lead people to
abandon the use of the country's
currency in favour of external currencies
(dollarization), as has been reported to
have occurred in North Korea.[96]
Corruption
Due to a high rise of
inflation,[Ströer Media 1] it has been seen to
affect unemployment levels around the
world. From 2005 to 2019, it was found
that the wellbeing costs of
unemployment was 5 times higher than
inflation. The trust between the central
banks and individuals has become more
limited. According to the Global Labor
Organization (GLO),[97] a global sample
of 1.5 million observations during the
1999 and 2012 found a negative
relationship of ECB unemployment
between countries of Spain, Ireland,
Greece, and Portugal a financial
crisis.[98] Lack of trust is shown between
the government and political institutions
which potentially, this can create bias
towards both sides as unemployment
rate will still increase. If the rate goes
on, predictions of the economic activity
may decrease, and investments from
around the world will soon slowdown
creating a "economy crash" that can
affect millions of peoples' living.[99]
Allocative efficiency
A change in the supply or demand for a
good will normally cause its relative
price to change, signaling the buyers
and sellers that they should re-allocate
resources in response to the new
market conditions. But when prices are
constantly changing due to inflation,
price changes due to genuine relative
price signals are difficult to distinguish
from price changes due to general
inflation, so agents are slow to respond
to them. The result is a loss of allocative
efficiency.
Shoe leather cost

High inflation increases the opportunity
cost of holding cash balances and can
induce people to hold a greater portion
of their assets in interest paying
accounts. However, since cash is still
needed to carry out transactions this
means that more "trips to the bank" are
necessary to make withdrawals,
proverbially wearing out the "shoe
leather" with each trip.
Menu cost
Low-cost price adjustment
With high inflation, firms must change

their prices often to keep up with
economy-wide changes. But often
changing prices is itself a costly activity
whether explicitly, as with the need to
print new menus, or implicitly, as with
the extra time and effort needed to
change prices constantly.
Tax
Inflation serves as a hidden tax on
currency holdings.[100][101]
Positive
Labour-market adjustments
Nominal wages are slow to adjust
downward. This can lead to prolonged
disequilibrium and high unemployment
in the labor market. Since inflation
allows real wages to fall even if nominal
wages are kept constant, moderate
inflation enables labor markets to reach
equilibrium faster.[102]
Room to maneuver
The primary tools for controlling the
money supply are the ability to set the
discount rate, the rate at which banks
can borrow from the central bank, and
open market operations, which are the
central bank's interventions into the
bonds market with the aim of affecting
the nominal interest rate. If an economy
finds itself in a recession with already
low, or even zero, nominal interest rates,
then the bank cannot cut these rates
further (since negative nominal interest
rates are impossible) to stimulate the
economy – this situation is known as a
liquidity trap.
Mundell–Tobin effect
According to the Mundell-Tobin effect,
an increase in inflation leads to an
increase in capital investment, which
leads to an increase in growth.[103] The
Nobel laureate Robert Mundell noted
that moderate inflation would induce
savers to substitute lending for some
money holding as a means to finance
future spending. That substitution would
cause market clearing real interest rates
to fall.[104] The lower real rate of interest
would induce more borrowing to finance
investment. In a similar vein, Nobel
laureate James Tobin noted that such
inflation would cause businesses to
substitute investment in physical capital
(plant, equipment, and inventories) for
money balances in their asset
portfolios. That substitution would
mean choosing the making of
investments with lower rates of real
return. (The rates of return are lower
because the investments with higher
rates of return were already being made
before.)[105] The two related effects are
known as the Mundell–Tobin effect.
Unless the economy is already
overinvesting according to models of
economic growth theory, that extra
investment resulting from the effect
would be seen as positive.
Instability with deflation
Economist S.C. Tsiang noted that once
substantial deflation is expected, two
important effects will appear; both a
result of money holding substituting for
lending as a vehicle for saving.[106] The
first was that continually falling prices
and the resulting incentive to hoard
money will cause instability resulting
from the likely increasing fear, while
money hoards grow in value, that the
value of those hoards are at risk, as
people realize that a movement to trade
those money hoards for real goods and
assets will quickly drive those prices up.
Any movement to spend those hoards
"once started would become a
tremendous avalanche, which could
rampage for a long time before it would
spend itself."[107] Thus, a regime of long-
term deflation is likely to be interrupted
by periodic spikes of rapid inflation and
consequent real economic disruptions.
The second effect noted by Tsiang is
that when savers have substituted
money holding for lending on financial
markets, the role of those markets in
channeling savings into investment is
undermined. With nominal interest rates
driven to zero, or near zero, from the
competition with a high return money
asset, there would be no price
mechanism in whatever is left of those
markets. With financial markets
effectively euthanized, the remaining
goods and physical asset prices would
move in perverse directions. For
example, an increased desire to save
could not push interest rates further
down (and thereby stimulate
investment) but would instead cause
additional money hoarding, driving
consumer prices further down and
making investment in consumer goods
production thereby less attractive.
Moderate inflation, once its expectation
is incorporated into nominal interest
rates, would give those interest rates
room to go both up and down in
response to shifting investment
opportunities, or savers' preferences,
and thus allow financial markets to
function in a more normal fashion.
Cost-of-living allowance
The real purchasing power of fixed payments is eroded by inflation unless they are inflation-
adjusted to keep their real values constant. In many countries, employment contracts, pension
benefits, and government entitlements (such as social security) are tied to a cost-of-living index,
typically to the consumer price index.[108] A cost-of-living adjustment (COLA) adjusts salaries
based on changes in a cost-of-living index.[109] It does not control inflation, but rather seeks to
mitigate the consequences of inflation for those on fixed incomes. Salaries are typically
adjusted annually in low inflation economies. During hyperinflation they are adjusted more
often.[108] They may also be tied to a cost-of-living index that varies by geographic location if the
employee moves.
Annual escalation clauses in employment contracts can specify retroactive or future percentage
increases in worker pay which are not tied to any index. These negotiated increases in pay are
colloquially referred to as cost-of-living adjustments ("COLAs") or cost-of-living increases
because of their similarity to increases tied to externally determined indexes.
Controlling inflation
Monetary policy is the policy enacted by the monetary authorities (most frequently the central
bank of a nation) to accomplish their objectives.[110] Among these, keeping inflation at a low and
stable level is often a prominent objective, either directly via inflation targeting or indirectly, e.g.
via a fixed exchange rate against a low-inflation currency area.
Historical approaches to inflation

control
Historically, central banks and governments have followed various policies to achieve low
inflation, employing various nominal anchors. Before World War I, the gold standard was
prevalent, but was eventually found to be detrimental to economic stability and employment, not
least during the Great Depression in the 1930s.[111] For the first decades after World War II, the
Bretton Woods system initiated a fixed exchange rate system for most developed countries,
tying their currencies to the US dollar, which again was directly convertible to gold.[112] The
system disintegrated in the 1970s, however, after which the major currencies started floating
against each other.[113] During the 1970s many central banks turned to a money supply target
recommended by Milton Friedman and other monetarists, aiming for a stable growth rate of
money to control inflation. However, it was found to be impractical because of the unstable
relationship between monetary aggregates and other macroeconomic variables, and was
eventually abandoned by all major economies.[111] In 1990, New Zealand as the first country ever
adopted an official inflation target as the basis of its monetary policy, continually adjusting
interest rates to steer the country's inflation rate towards its official target. The strategy was
generally considered to work well, and central banks in most developed countries have over the
years adapted a similar strategy.[114] As of 2023, the central banks of all G7 member countries
can be said to follow an inflation target, including the European Central Bank and the Federal
Reserve, who have adopted the main elements of inflation targeting without officially calling
themselves inflation targeters.[114] In emerging countries fixed exchange rate regimes are still
the most common monetary policy.[115]
Inflation targeting
The U.S. effective federal funds rate charted over fifty years
From its first inception in New Zealand in 1990, direct inflation targeting as a monetary policy
strategy has spread to become prevalent among developed countries. The basic idea is that the
central bank perpetually adjusts interest rates to steer the country's inflation rate towards its
official target. Via the monetary transmission mechanism interest rate changes affect aggregate
demand in various ways, causing output and employment to respond.[116] Changes in
employment and unemployment rates affect wage setting, leading to larger or smaller wage
increases, depending on the direction of the interest rate adjustment. A changed rate of wage
increases will transmit into changes in price setting – i.e. a change in the inflation rate. The
relation between (un)employment and relation is known as the Phillips curve.
In most OECD countries, the inflation target is usually about 2% to 3% (in developing countries
like Armenia, the inflation target is higher, at around 4%).[117] Low (as opposed to zero or
negative) inflation reduces the severity of economic recessions by enabling the labor market to
adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary
policy from stabilizing the economy.[12][13]
Fixed exchange rates
Under a fixed exchange rate currency regime, a country's currency is tied in value to another
single currency or to a basket of other currencies. A fixed exchange rate is usually used to
stabilize the value of a currency, vis-a-vis the currency it is pegged to. It can also be used as a
means to control inflation if the currency area tied to itself maintains low and stable inflation.
However, as the value of the reference currency rises and falls, so does the currency pegged to
it. This essentially means that the inflation rate in the fixed exchange rate country is determined
by the inflation rate of the country the currency is pegged to. In addition, a fixed exchange rate
prevents a government from using domestic monetary policy to achieve macroeconomic
stability.[118]
As of 2023, Denmark is the only OECD country which maintains a fixed exchange rate (against
the euro), but it is frequently used as a monetary policy strategy in developing countries.[115]
Gold standard
Two 20 krona gold coins from the

Scandinavian Monetary Union, a historical
example of an international gold standard
The gold standard is a monetary system in which a region's common medium of exchange is
paper notes (or other monetary token) that are normally freely convertible into pre-set, fixed
quantities of gold. The standard specifies how the gold backing would be implemented,
including the amount of specie per currency unit. The currency itself has no innate value but is
accepted by traders because it can be redeemed for the equivalent value of the commodity
(specie). A U.S. silver certificate, for example, could be redeemed for an actual piece of silver.
Under a gold standard, the long term rate of inflation (or deflation) would be determined by the
growth rate of the supply of gold relative to total output.[119] Critics argue that this will cause
arbitrary fluctuations in the inflation rate, and that monetary policy would essentially be
determined by an intersection of however much new gold was produced by mining and changing
demand for gold for practical uses.[120][121] The gold standard was historically found to make it
more difficult to stabilize employment levels and avoid recessions and was eventually
abandoned everywhere, so that today it is no longer used by any country.[111][122]
Wage and price controls

Another method attempted in the past have been wage and price controls ("incomes policies").
Temporary price controls may be used as a complement to other policies to fight inflation; price
controls may make disinflation faster, while reducing the need for unemployment to reduce
inflation. If price controls are used during a recession, the kinds of distortions that price controls
cause may be lessened. However, economists generally advise against the imposition of price
controls.
Wage and price controls, in combination with rationing, have been used successfully in wartime
environments. However, their use in other contexts is far more mixed. Notable failures of their
use include the 1972 imposition of wage and price controls by Richard Nixon. More successful
examples include the Prices and Incomes Accord in Australia and the Wassenaar Agreement in
the Netherlands.
In general, wage and price controls are regarded as a temporary and exceptional measures, only
effective when coupled with policies designed to reduce the underlying causes of inflation
during the wage and price control regime, for example, winning the war being fought.
See also
Core inflation
Food prices
Hyperinflation
Indexed unit of account
Inflationism
Inflation hedge
Headline inflation
List of countries by inflation rate
Measuring economic worth over time
Overconsumption
Shrinkflation and Skimpflation
Real versus nominal value (economics)
Steady-state economy
Stealth inflation
Welfare cost of inflation
Supply shock
Template:Inflation – for price
conversions in Wikipedia articles
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References
Abel, Andrew B.; Bernanke, Ben S.;

Croushore, Dean (2005).
Macroeconomics (5th ed.). Pearson.
ISBN 978-0-32119963-8. Measurement
of inflation is discussed in Ch. 2, pp. 45–
50; Money growth & Inflation in Ch. 7,
pp. 266–269; Keynesian business cycles
and inflation in Ch. 9, pp. 308–348.
Barro, Robert J. (1997).
Macroeconomics. Cambridge,
Massachusetts: MIT Press. p. 895.
ISBN 0-262-02436-5.
Blanchard, Olivier (2021).
Macroeconomics (Eighth, global ed.).
Harlow, England: Pearson. ISBN 978-0-
134-89789-9.
Mankiw, N. Gregory (2002).
Macroeconomics (5th ed.). Worth.
ISBN 978-0-71675237-0. Measurement
of inflation is discussed in Ch. 2, pp. 22–
32; Money growth & Inflation in Ch. 4,
pp. 81–107; Keynesian business cycles
and inflation in Ch. 9, pp. 238–255.
Hall, Robert E.; Taylor, John B. (1993).
Macroeconomics (https://archive.org/de
tails/macroeconomics00hall/page/63
7) . New York: W.W. Norton. p. 637 (http
s://archive.org/details/macroeconomics
00hall/page/637) . ISBN 0-393-96307-1.
Burda, Michael C.; Wyplosz, Charles
(1997). Macroeconomics: a European
text. Oxford [Oxfordshire]: Oxford
University Press. ISBN 0-19-877468-0.
Further reading
World Bank, 2018. Inflation in Emerging

and Developing Economies: Evolution,
Drivers and Policies (https://www.worldb
ank.org/en/research/publication/inflatio
n-in-emerging-and-developing-economie
s) . Edited by Jongrim Ha, M. Ayhan
Kose, and Franziska Ohnsorge.
Auernheimer, Leonardo, "The Honest
Government's Guide to the Revenue
From the Creation of Money", Journal of
Political Economy, Vol. 82, No. 3,
May/June 1974, pp. 598–606.
Baumol, William J. and Alan S. Blinder,
Macroeconomics: Principles and Policy,
Tenth edition. Thomson South-Western,
2006. ISBN 0-324-22114-2.
Friedman, Milton, Nobel lecture: Inflation
and unemployment (https://www.nobelp
rize.org/nobel_prizes/economics/laurea
tes/1976/friedman-lecture.pdf) 1977.
Mishkin, Frederic S., The Economics of
Money, Banking, and Financial Markets,
New York, HarperCollins, 1995.
ಫೆಡರಲ್ ರಿಸರ್ವ್ ಬ್ಯಾಂಕ್ ಆಫ್ ಬೋಸ್ಟನ್ ,
"ಅಂಡರ್‌ಸ್ಟ್ಯಾಂಡಿಂಗ್ ಇನ್ಫ್ಲೇಶನ್ ಅಂಡ್ ದಿ
ಇಂಪ್ಲಿಕೇಶನ್ಸ್ ಫಾರ್ ಮಾನಿಟರಿ ಪಾಲಿಸಿ: ಎ
ಫಿಲಿಪ್ಸ್ ಕರ್ವ್ ರೆಟ್ರೋಸ್ಪೆಕ್ಟಿವ್" (http://www.b
os.frb.org/economic/conf/conf53/inde
x.htm) ಆಗಸ್ಟ್ 26, 2013 ರಂದು ವೇಬ್ಯಾಕ್
ಮೆಷಿನ್ , ಕಾನ್ಫರೆನ್ಸ್ ಸೀರೀಸ್ 53, ಜೂನ್ 9–11,
2008, ಚಾಥಮ್, ಮಾಸ್ಸಾಚುಸೆಟ್ಸ್‌ನಲ್ಲಿ ಆರ್ಕೈವ್
ಮಾಡಲಾಗಿದೆ (https://web.archive.org/we
b/20130826003309/http://www.bos.frb.
org/economic/conf/conf53/index.htm)
. (ಸಹ cf. ಫಿಲಿಪ್ಸ್ ಕರ್ವ್ ಲೇಖನ).
ಬಾಹ್ಯ ಕೊಂಡಿಗಳು
ಯುರೋಪಿಯನ್ ವಿಕಿಕೋ
ಒಕ್ಕೂಟದಲ್ಲಿ ಹಣದುಬ್ಬರಕ್ಕೆ ಟ್
ಹಣದು
ಹೊಳೆಯುವ ಅಪ್ಲಿಕೇಶನ್ (h ಬ್ಬರಕ್ಕೆ
ttps://nickydy.shinyapp
ಸಂಬಂಧಿ
ಸಿದ
s.io/prices//) ಉಲ್ಲೇಖ
ಗಳನ್ನು
OECD ಗ್ರಾಹಕ ಬೆಲೆ ಹೊಂದಿದೆ
ಸೂಚ್ಯಂಕ (https://data.o .
ecd.org/price/inflation- ಹಣದುಬ್ಬರದ
ಬಗ್ಗೆ
cpi.htm)
ಗ್ರಂಥಾಲಯ
ಯುನೈಟೆಡ್ ಸ್ಟೇಟ್ಸ್ ಸಂಪನ್ಮೂಲಗ
ಳು
ಬ್ಯೂರೋ ಆಫ್ ಲೇಬರ್
ಸ್ಟ್ಯಾಟಿಸ್ಟಿಕ್ಸ್ - ಗ್ರಾಹಕ ಬೆಲೆ ನಿಮ್ಮ
ಲೈಬ್ರರಿಯಲ್ಲಿ
ರುವ
ಸೂಚ್ಯಂಕ (http://www.bl ಸಂಪನ್ಮೂಲಗ
ಳು (https://ft
s.gov/cpi/) l.toolforge.o
rg/cgi-bin/ft
ಸಾಮಾನ್ಯ ಉದ್ದೇಶದ l?st=wp&su
ಸಂಯುಕ್ತ ಹಣದುಬ್ಬರ =Inflation)
ಕ್ಯಾಲ್ಕುಲೇಟರ್ (http://dail
ytools.in/FinanceInvestment/InflationCa
lculator)
US ಕಾಸ್ಟ್ ಆಫ್ ಲಿವಿಂಗ್ ಕ್ಯಾಲ್ಕುಲೇಟರ್
(1913–ಇಂದಿನವರೆಗೆ) (http://www.aier.org/
cost-living-calculator) ವೇಬ್ಯಾಕ್
ಮೆಷಿನ್‌ನಲ್ಲಿ ( AIER ) ಸೆಪ್ಟೆಂಬರ್ 5, 2019
ರಂದು ಆರ್ಕೈವ್ ಮಾಡಲಾಗಿದೆ (https://web.ar
chive.org/web/20190905192854/http://
www.aier.org/cost-living-calculator)
US ಹಣದುಬ್ಬರ ಕ್ಯಾಲ್ಕುಲೇಟರ್ (1913–
ಇಂದಿನವರೆಗೆ) (http://www.bls.gov/data/in
flation_calculator.htm) ( US BLS )
US ಹಣದುಬ್ಬರ (ಐತಿಹಾಸಿಕ ದಾಖಲೆಗಳು) (http
s://fraser.stlouisfed.org/theme/59) (
FRASER )
ವಿಶ್ವ ಹಣದುಬ್ಬರ (1290–2006) (https://we
b.archive.org/web/20080422012228/htt
p://www.riksbank.com/templates/Page.
aspx?id=27404) ( ಗ್ರಾಹಕ ಬೆಲೆ ಸೂಚ್ಯಂಕ ) (
ಸ್ವೀಡಿಷ್ ರಿಕ್ಸ್‌ಬ್ಯಾಂಕ್ )
ಎಲ್ಲಾ ದೇಶಗಳಿಗೆ ವಿಶ್ವ ಬ್ಯಾಂಕ್ ವಾರ್ಷಿಕ
ಹಣದುಬ್ಬರ ದರಗಳು (https://data.worldban
k.org/indicator/FP.CPI.TOTL.ZG)
ಹಣದುಬ್ಬರ ಕ್ಯಾಲ್ಕುಲೇಟರ್ (https://calcinfla
tion.com/)
Retrieved from
"https://en.wikipedia.org/w/index.php?
title=Inflation&oldid=1225317865"
This page was last edited on 23 May 2024, at

17:46 (UTC). •
ಗಮನಿಸದ ಹೊರತು CC BY-SA 4.0 ಅಡಿಯಲ್ಲಿ ವಿಷಯ
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ಹಣದುಬ್ಬರ

ಅರ್ಥಶಾಸ್ತ್ರದಲ್ಲಿ , ಹಣದುಬ್ಬರವು ಆರ್ಥಿಕತೆಯಲ್ಲಿ ಸರಕು ಮತ್ತು ಸೇವೆಗಳ ಬೆಲೆಗಳಲ್ಲಿ ಸಾಮಾನ್ಯ ಹೆಚ್ಚಳವಾಗಿದೆ .

ಅಕ್ಟೋಬರ್ 2023 ರಲ್ಲಿ ಅಂತರರಾಷ್ಟ್ರೀಯ ಹಣಕಾಸು ನಿಧಿಯ ಸದಸ್ಯರ ನಡುವಿನ

ಹಣದುಬ್ಬರದಲ್ಲಿನ ಬದಲಾವಣೆಗಳು ಸರಕು ಮತ್ತು ಸೇವೆಗಳ ನೈಜ ಬೇಡಿಕೆಯಲ್ಲಿನ ಏರಿಳಿತಗಳಿಗೆ ವ್ಯಾಪಕವಾಗಿ

Historically, inflations of varying magnitudes have occurred, interspersed with corresponding

The silver content of Roman silver coins rapidly declined

— Chihab Al-Umari, Kingdom

Medieval age and "price revolution" in

PPI is a leading indicator, CPI and PCE lag[46]

Producer price indices (PPIs) which

GDP deflator is a measure of the price

Regional inflation The Bureau of Labor

A long-standing survey of inflation expectations is the University of Michigan survey.[61]

Keynes and the early Keynesians

is the nominal quantity of money;

Rational expectations theory

Demand shocks may both decrease and

U.S. corporate profits as a proportion of GDP (blue) and year-over-year

In 2021–2023, most countries experienced a considerable increase in inflation, culminating

US prices of crude oil and gasoline in February and March, 2022

Restaurant increasing prices by $1.00 due to

Social unrest and revolts

Shoe leather cost

With high inflation, firms must change

Historical approaches to inflation

Two 20 krona gold coins from the

Wage and price controls

1. "Inflation worldwide - Statics & Facts" (http

1. "Consumer Price Index for All Urban

2. "CPIH Annual Rate 00: All Items 2015=100"

7. Why price stability? (http://www.sedlabanki.

9. Mankiw 2002, pp. 22–32.

16. Blaug, Mark (March 27, 1997). Economic

18. "Disinflation: Definition, How It Works,

20. "What Is Stagflation, What Causes It, and

21. "What Is Reflation?" (https://www.thebalanc

22. "Asset-Price Inflation vs. Economic Growth"

24. "UK House Price Index: November 2021" (ht

25. Rubene, Ieva; Koester, Gerrit (May 6, 2021).

27. "Fiat Money: What It Is, How It Works,

32. Harl, Kenneth W. (1996). Coinage in the

34. Shostak, Frank (June 16, 2008).

36. Ropp, Paul S. (2010). China in World

37. Bernholz, Peter (2003). Monetary Regimes

39. "Kingdom of Mali – Primary Source

41. "John Munro: The Monetary Origins of the

43. Bernholz, Peter; Kugler, Peter (August 1,

45. Fischer, David Hackett (1996). The Great

46. "What Does the Producer Price Index Tell

51. Taylor, Timothy (2008). Principles of

57. Kenton, Will. "Why Core Inflation is

62. Dimand, Robert W. (2016). "Monetary

64. Schwartz, Anna J. (2018). "Banking School,

66. Friedman, Milton; Schwartz, Anna

67. Lagassé, Paul (2000). "Monetarism". The

68. Mankiw (2022).

71. Goodfriend, Marvin (November 1, 2007).

73. "Inflation in the U.S. Economy: Causes and

74. Robert J. Gordon (1988), Macroeconomics:

78. Romer, David (2019). Advanced

80. Alston, Richard M.; Kearl, J.R.; Vaughan,

83. Geide-Stevenson, Doris; La Parra-Perez,

85. Mankiw, N. Gregory (2015). "Part V,